Starhill, formerly known as Macquarie Prime Reit until YTL acquired control, yesterday announced a 1-for-1 rights issue at 35 cents to raise $326.1 mln.

The subscription price represents:

- 29.3% discount to the theoretical ex-rights price based on Friday’s 64 cents close. The discount is slightly higher than 28.7% for CapitaMall (CMT), and 28.5% for CapitaCommercial (CCT).

- 56.4% discount to pro-forma NAV of 80.2 cents. Given that at least 90% of the net proceeds will go towards debt repayment, gearing will drop to 20.7% from 31.1% as reported for Q1 ended Mar ’09, and 33.4% after adjusting for the drop in valuation for the assets of the reit.

Coupled with the waning “magic” surrounding companies announcing rights issues (especially after the flood of rights / placements in recent weeks), we expect StarHill’s price to weaken in the short term.

We do not have a rating for StarHill, as our preferences have been for reits supported by CapitaLand, Keppel Land, City Developments.

What is also worth noting is that most of the larger reits have raised new capital from existing unit-holders, which have reduced their gearing.