Lendlease Global Commercial Reit (LReit), which currently indirectly holds a 31.8 per cent stake in Jem mall, has proposed to acquire the remaining interest in the prime Jurong property at an agreed value of $2.079 billion.

 

If the deal goes through, the real estate investment trust (Reit) will come to own a direct 100 per cent stake in Jem, which will, in turn, bump its total portfolio net lettable area up by a substantial 70 per cent, to around 2.2 million square feet.

 

The enlarged portfolio is also expected to lift its 2021 financial year net property income to $147.8 million, from $56.9 million, resulting in a net property income yield of 4.2 per cent.

 

In a bourse filing on Monday night (Feb 14), the manager said the transaction, which is expected to provide 10.5 per cent distribution per unit (DPU) accretion, could be completed by as early as May 15 this year, if all goes to plan.

 

The agreed property value was arrived at on a " willing buyer and willing seller" basis after taking into account two independent valuations of Jem as at Dec 31, 2021, it stated.

 

Jones Lang LaSalle Property Consultants gave the integrated office and retail asset, located next to Jurong East MRT Station and bus interchange, a $2.086 billion valuation, while CBRE evaluated it to be worth $2.063 billion.

 

As such, the property purchase consideration of $2.079 billion comes at a discount of some 0.3 per cent or a $7 million discount to the appraised value.

 

Notwithstanding that, the manager said LReit would benefit from recurring tax savings with the acquisition, given its shift away from a fund structure.

 

Currently, LReit holds an indirect interest in Jem through its 24.8 per cent interest in Lendlease Asian Retail Investment Fund 3 Limited (ARIF3), and 53 per cent interest in Lendlease Jem Partners Fund Limited (LLJP). ARIF3 and LLJP are both private funds owning 75 per cent and 25 per cent of Jem respectively.

 

As such, it does not benefit from tax transparency at the moment, the manager said, pointing out that LReit' s aggregate corporate income taxes came up to $5.6 million in FY2021.

 

Given that Jem has six levels of retail space and 12 levels of office space, which has been fully leased to the Ministry of National Development, the manager added that LReit will also benefit from a 30-year master lease with a rent review of every 5 years with the ministry.

 

The acquisition is estimated to cost $2.015 billion in total.

 

The manager said it intends for up to $1.015 billion of the cost to be funded through equity fundraising, the structure and timing of which has not been decided upon.

 

This may involve a private placement of new LReit units to institutional and other investors, a non-renounceable preferential offering of new units to existing unitholders on a pro rata basis, or both, the manager noted.

 

The manager said that Lendlease Corporation has also " irrevocably committed" to invest some $234 million. The amount comprises consideration units of about $116 million in lieu of cash for the divestment of its stake in Jem and, in the event that the equity fundraising includes a preferential offering, up to $117.8 million from subscription of its pro rata share and application for additional units.

 

Unitholders of LReit will vote on the proposed acquisition at a virtual extraordinary general meeting to be convened on March 7.

LENDLEASE Global Commercial Reit' s (LReit) distribution per unit (DPU) rose by 2.6 per cent to S$0.024 for its first half ended Dec 31, 2021, from S$0.0234 a year ago.

 

The amount distributable to unitholders was S$28.6 million, growing by 3.8 per cent year on year from S$27.5 million.

 

LReit' s acquisition of an additional stake in Jem, a retail and commercial development located in Jurong East, gave a boost to the distributable income, the real estate investment trust' s manager said in a filing on Friday (Feb 4) after the market closed.

 

However, gross revenue fell 5.8 per cent to about S$39.2 million for the six-month period, from S$41.6 million in the corresponding period in 2020.

 

LReit' s Lendlease Reit: JYEU +3.66%   manager attributed this to lower rental reversion at the 313@somerset mall in Singapore as well as a drop in revenue from Italy' s Sky Complex office buildings due to foreign exchange.

 

The decline in gross revenue was partially offset by a S$1.7 million or 14.9 per cent decrease in property operating expenses for the half year.

 

Net property income (NPI) edged down by 2.5 per cent on the year to S$29.6 million for the half year, from nearly S$30.4 million previously.

 

The distribution of S$0.024 per unit will be paid out on Mar 14, after the record date of Feb 15.

 

LReit' s manager posted an all-time high portfolio occupancy rate of 99.9 per cent as at Dec 31, 2021, with only 2 per cent of the portfolio' s total net lettable area (NLA) due for renewal for the rest of FY2022.

 

With this, LReit continues to maintain a long weighted average lease expiry of 8.4 years by NLA and 4.4 by gross rental income (GRI).

 

At 313@somerset, the manager will use about 660 square feet (sq ft) arising from the increase in permissible plot ratio at 2 prime, ground-floor units to expand the leasable unit space.

 

It said it will deploy the additional gross floor area (GFA) during the fit-out period, to avoid unnecessary hoarding and disruption to the operations of other tenants in the mall.

 

" With the remaining untapped GFA of approximately 10,200 sq ft, the manager is confident that LReit will be able to maximise the full potential of 313@somerset and bring value to its unitholders," it added.

 

313@somerset recorded a tenant retention rate of 75.8 per cent as at the end of last year, while its occupancy rate stood at 99.7 per cent.

 

As for Jem, the office component remains fully leased to Singapore' s Ministry of National Development for a 30-year lease term.

 

The LReit manager said that demand for office space in the city-state' s suburban market is likely to stay resilient due to the decentralisation trend as more occupiers look to the suburban areas to save on rental costs and adopt a flex-and-core workplace strategy.

 

Over in Milan, Sky Complex' s Grade A buildings are fully occupied by a single tenant and operate on a triple-net lease structure.

Reit' s portfolio expansion ' would technically follow the parent' s footprints' overseas acquisitions likely to be in Europe and Australia.

 

LENDLEASE Global Commercial Reit (LReit) has been looking to pick up its pace of growth amid Covid-19, with Australia and Europe key markets of interest, the real estate investment trust (Reit)' s manager told The Business Times.

 

Nevertheless, Singapore is set to make up the bulk of its portfolio expansion for now, whether through acquisitions from third parties or sponsor Lendlease Corp, said Kelvin Chow, LReit' s chief executive officer.

 

With the management aiming for " pension-like" returns, he said LReit is more selective over potential assets " because we do have so many on the plate" .

 

The Reit has not made many acquisitions since its initial public offering (IPO) on the mainboard in October 2019.

 

LReit' s portfolio comprises Grade A office project Sky Complex in Milan, Italy the 313@Somerset mall along Singapore' s Orchard Road and an indirect partial stake in the suburban Jurong mall Jem.

 

Ahead of its last annual general meeting, unitholders had raised questions about plans and the pipeline for more deals.

 

They also asked when the Reit would buy two other Singapore malls managed by parent Lendlease: Paya Lebar Quarter and Parkway Parade.

 

In response, Chow told BT that the Reit' s portfolio expansion " would technically follow the parent' s footprints" .

 

" Most of the Reits start out with a destination, but we started out with a global mandate because we believe that we will eventually go out of Singapore and this will be the only Reit in the Lendlease Group that' s focusing on commercial assets," he added.

 

Overseas acquisitions will likely be in Europe, where LReit has Sky Complex and Australia, where the Reit' s parent is based.

 

Inorganic growth abroad is also expected to skew towards office assets for now, Chow said, as e-commerce penetration is higher abroad and " retail is still yet to be tested after Covid" .

 

But Singapore is " still a major focus" , Chow added, arguing that investors like familiar properties that " they can see and they can feel" .

 

The widely anticipated acquisition of a larger stake in Jem would seem to fit that bill.

 

LReit recently raised its effective indirect interest in Jem from 5 per cent to 31.8 per cent, by buying into 2 private funds that are related to Reit sponsor Lendlease.

 

Calling Jem " a good addition to the portfolio" , as a suburban asset where more than half of the tenant base offers essential services, Chow said that the Covid-19 pandemic prompted management to expedite its decision-making process on portfolio expansion.

 

The Reit' s leadership now anticipates taking up " more of Jem in a quicker and faster manner" , he said, although he could not give an exact timeline.

 

Noting that parent Lendlease has both fund manager and property development businesses, he also suggested LReit could be involved in constructing new assets before eventually taking over the projects in sale-and-leaseback arrangements.

 

Asked if Lendlease' s relatively small footprint in Singapore would limit the Reit' s acquisition pipeline, Chow said the Reit has " some exclusive deals with some third-party vendors" for either direct divestments or asset refurbishments. " That will add to more dimensions of our ability to acquire," he said.

 

At the same time, Chow warned: " Covid has proved to us that while the asset might be located in a good location, it might not generate good cash flow because the underlying tenants might not have a very strong background."

 

Chow, whose career has included stints at Temasek-linked landlords such as Ascendas Reit and Keppel Reit, was adamant that " quality of the cash flow is essential to build up the portfolio" .

 

He touted how the office component of Jem is anchored by the Ministry of National Development, which announced in 2011 that it had inked a 30-year lease for 29,300 square metres of space.

 

Similarly, Sky Complex is fully let until 2032, albeit with a break option in 2026, to a subsidiary of broadcasting giant Comcast.

 

" You are technically leasing the building to a triple-A kind of tenant," Chow said, referring to Comcast' s investment-grade credit ratings.

 

Besides its rental and occupancy rates, other factors that affect the appeal of a potential asset include whether it needs refurbishment or enhancement, he added.

 

" The basic principle of the Reit is to provide something that is sustainable and also has a pension-like distribution," Chow said.

 

LReit posted a full-year distribution per unit of 4.68 Singapore cents for its financial year to Jun 30, 2021, up 14.7 per cent from 4.08 Singapore cents in the prior year. Net property income was S$56.9 million, up 5.4 per cent from S$54 million and gross revenue rose 5.6 per cent to S$78.7 million from S$74.5 million.

 

SYDNEY-BASED Lendlease, which manages Singapore-listed Lendlease Global Commercial Reit, is commencing construction on a large-scale, greenfield vaccine facility in late-2021. It did not disclose the identity of the client. 

 

The move comes as the Republic sees an increase in the number of Covid-19 vaccine-related investments, with three major pharmaceutical companies - BioNTech, Sanofi and Thermo Fisher Scientific - having plans to set up vaccine manufacturing facilities here.

 

The new facility will leverage the real estate group' s digital capabilities, best practices in construction and experience in the sector, it said in a press statement on Thursday. It added that it has built more than 90 per cent of the biotechnology facilities in JTC' s Tuas Biomedical Park since the late-1990s.

 

Lendlease has also been appointed to take on additional projects for existing Singapore clients, including expanding existing facilities to enhance their capabilities.

 

Lendlease Asia chief executive Justin Gabbani said the life sciences sector is one of the group' s key focus areas where it is looking to apply its expertise across the integrated real estate value chain.

 

In March 2021, Lendlease inked a partnership in the US with institutional investor Ivanhoe Cambridge to develop the 60 Guest Street project in Boston, a 320,000 square foot life sciences hub.