Malaysia’s Starhill REIT up 6.3% at MYR1.02 on debut

KUALA LUMPUR (Dow Jones)–Starhill REIT (5109.KU) – Malaysia’s biggest-ever real estate investment trust – rose 6.3% at its Friday debut from its retail initial public offer price, confirming demand is strong for the country’s first mall REIT, analysts and industry players said.

At midday, Starhill was at MYR1.02, versus its retail IPO price of MYR0.96. A total 68 million units were transacted Friday, accounting for 40% of total volume in Bursa Malaysia.

Starhill – which pools Lot 10 and Starhill Gallery malls and the J.W. Marriott hotel – is Malaysia’s second REIT under new regulations for the instrument, including a more transparent tax structure and the removal of a property capital-gains tax.

REITs, financial instruments for investing in real estate, have won many supporters since their introduction in Asia, mainly due to their relatively high yields and steady income. Japan, Australia and Singapore are market leaders in the business in Asia.

Starhill’s IPO was 8.8 times subscribed when it closed Dec. 1.

“At 8.8 times subscribed, and with foreign investors bidding for about two-thirds (of the initial offer), the REIT is well-supported,” said a senior industry executive.

Some 94% of the IPO units were sold to institutional investors via book-building at MYR1.01 each.

Starhill, Malaysia’s first REIT in over a decade to be marketed overseas, also sold units to individual investors at MYR0.96 each. In total, Starhill sold 49% of the REIT, or 509.6 million units, raising about MYR513.2 million.

The diversified YTL Corp. (4677.KU) conglomerate, headed by managing director Francis Yeoh, controls 51% of Starhill post-IPO.

The offer coincided with Malaysia’s first interest rate hike in seven years, raising local investor concern that yields weren’t attractive enough, analysts said.

Starhill has dismissed these concerns, noting the high foreign interest in the offer even though Malaysia’s tax regulations on REITs aren’t as transparent as those of countries such as Singapore. Malaysia taxes REIT income at the end-investor level, while Singapore doesn’t.

Starhill has committed to paying out 100% of its earnings in dividends in 2006 and 2007. At MYR1.01 a unit, the REIT will yield about 6.2%, significantly higher than 12-month term deposit rates of 3.7%.

Pintar Projek Bhd., a 70%-owned YTL unit, will manage the REIT.
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