The news: Starhill announced this morning that the High Court has dismissed its application for the over the rental review mechanism for the Toshin master lease at Ngee Ann City. Starhill is planning to file an appeal against the decision and applying for a stay of the High Court’s orders in the meantime.
Our thoughts: Starhill’s master lease with Toshin covers level 1-4 of Ngee Ann City, one of the most successful malls in the prime district of Orchard. Under the legacy master lease, Starhill leases the prime retail space of these 4 levels to Toshin at below-market rentals of $12-13 psf, with the master lease running till 2013. Comparatively, the REIT is currently leasing its retail space in Wisma Atria at rentals of $30 psf. It is thus no wonder that Starhill is upset over the current rent review structure and seeks to overhaul the existing structure for it to maximise the value of the mall. A successful effort on this front could lead to capital values for the mall being re-rated to the $4000-5000 psf range common for Orchard road malls, instead of the current $2500 psf range that the mall is currently being valued at.
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