Row over Ngee Ann City rent

Straits Times: Tue, Sep 06
STARHILL Global Real Estate Investment Trust will appeal against Friday’s High Court ruling throwing out its demand for a review of the rent mechanism at its Ngee Ann City mall. Starhill wanted the court to set a new rent after the normal review…

STARHILL Global Real Estate Investment Trust will appeal against Friday’s High Court ruling throwing out its demand for a review of the rent mechanism at its Ngee Ann City mall.

Starhill wanted the court to set a new rent after the normal review process broke down in a dispute with its tenant over which valuers should be used.

The review mechanism – which occurs before the start of each rental term – determines whether rent should be increased or left at current rates.

Both parties are required to agree on three valuers, with the average of the three valuations used to set the new rent. The level cannot go below the existing rent, and must not be more than 25 per cent above current rates.

Starhill argued in court documents that there was a conflict of interest issue with its tenant Toshin over which valuers to pick.

After failing to agree on who the three valuers should be, Starhill asked the High Court in May to determine the rent.

That request was thrown out on Friday, but YTL Starhill Global Reit Management – the trust’s manager – said yesterday that it intends to appeal and apply for a stay of the court’s orders in the meantime.

Toshin – which is wholly owned by Japan-based Takashimaya – is the master tenant of the retail areas from basement two to level four of Ngee Ann City. It then leases the area to shops such as Chanel, Louis Vuitton and Kinokuniya.

DMG Research said in a note yesterday that under the master lease – which runs until 2013 – Starhill rents the space to Toshin at below-market rentals of $12 to $13 per sq ft (psf) a month.

In comparison, the Reit leases space in Wisma Atria at $30 psf a month.

‘It is 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,’ the DMG note said.

‘A successful effort on this front could lead to capital values for the mall being re-rated to the $4,000 psf to $5,000 psf range common for Orchard Road malls, instead of the current $2,500 psf range that the mall is currently being valued at.’

A new two-year lease term started on June 8, but the current rent will continue to apply until there is a new ruling, the May YTL statement said.

Once a new rent has been fixed, it will be applied retroactively from June 8.

Starhill Global Reit has a 27 per cent stake in the total share value of strata lots in Ngee Ann City.
Source: The Straits Times © Singapore Press Holdings Ltd.

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