Rent at Ngee Ann City up 10%

The Business Times, February 15, 2013

THE rental dispute between Starhill Global Reit and its master tenant in Ngee Ann City has concluded with a new base rent that is 10 per cent higher than the prevailing rate.

At the close of the rent review process yesterday, the manager, YTL Starhill Global Reit Management Limited, said the new rental rate is effective for the term starting June 8, 2011. "The new rate was based on the average of three market rental valuations, undertaken by independent licensed valuers, in accordance with the Court of Appeal's directions," said the manager.

The rental dispute arose in 2011, when Starhill and Toshin were unable to agree on which rent valuers should be used to determine whether rent should be increased or left at current rates. The review mechanism requires both parties to agree on three valuers, with the average of the three valuations used to set the new rent.

Starhill, which holds 27.23 per cent of the total share value of strata lots in Ngee Ann City, stands to receive about $3.8 million in rental arrears net of expenses from June 8, 2011, to Dec 31, 2012. The accumulated arrears are expected to be paid by Japan-based Takashimaya's Toshin Development Singapore Pte Ltd within the first quarter of this year.

Starhill's manager said it planned to distribute substantially the rental arrears received net of expenses together with the distributable income for the first quarter of 2013.

Assuming the accumulated rental arrears owing as a result of the increase in rent for the period from June 8, 2011, to Dec 31, 2012 were paid last year, the Reit would have seen a 4.3 per cent increase in distribution per unit for financial year 2012. This translates to an additional 0.19 cents per unit.

For December 2012, the Toshin lease - which occupies all the retail areas except level five of Ngee Ann City - contributed to 18.8 per cent of Starhill's portfolio gross rent.

Toshin is Starhill's largest tenant, and on April 18, 2012, gave notice of its intention to exercise the option to renew the master lease of 12 years, starting June 8, 2013.

"Our master lease with Toshin provides the Reit with long-term income stability as well as the potential for rental upside every three years," said the chief executive of the manager, Ho Sing. Starhill said there will be a separate exercise to determine the renewal rent to be paid upon commencement of the further option period. The renewal rent is expected to be determined prior to the start of the option period.

Should the renewal rate not be determined prior to the commencement date of the option period, the annual rent payable shall continue to apply until the renewal rent has been determined. Once a new rent has been fixed, it will be applied retrospectively.