Opportunistic cash call. Starhill Global is proposing a $337.3m rights issue on a 1-for-1 basis at $0.35 each. Proceeds are earmarked to repay loans and for asset enhancement activities and new acquisitions. Assuming the manager repays $236m of debt, gearing could drop to 20.7%, amongst the lowest in the Sreit sector. Overhang is minimized as YTL Corp has committed to subscribe for up to 75% of the rights issue.

Value enhancing plans in the works. We believe investors should look beyond the near term DPU dilution into the longer term positives of accretion coming from enhancing Wisma Atria over the next 2-3 years, as well as potential new acquisitions in Singapore and overseas, given current market conditions and leveraging on its sponsor YTL¨s network across the region. Potential new contributions from these exercises would likely alleviate downside pressure from office rents in view of the challenging office leasing market and competitive retail environment over the next few years.

Maintain Buy. Our revised pre-rights target price of $0.84 ($0.59 rights adjusted) has taken into account potential earnings boost from enhancing Wisma Atria and interest savings from loan reduction. The rights price of $0.35 ie at 0.44x P/adjusted bk NAV, offers a compelling entry level for investors seeking exposure to prime landmark assets in Singapore. We view potential downside risk, including execution of new purchases, as low given the vast experience of the reit management and strong sponsor support.