Lendlease Global Commercial REIT’s (LREIT) manager announced on Feb 14, that the REIT plans to acquire the remaining stake of Jem it doesn’t own for $2,079 million. With the acquisition, LREIT will own 100% of Jem and give the REIT exposure to Singapore’s defensive suburban retail sector. Jem will double LREIT’s deposited property value to $3.6 billion.
Singapore will account for 88% of assets, and Europe 12%. Of this, Jem retail accounts for 46.8%, Jem office 12.9%, European office 12%, and prime Orchard Road retail 28.3%. Jem would also add a certain defensiveness and income stability because of its long weighted average lease expiry (WALE).
The acquisition would be 10.5% accretive to DPU based on equity fund raising comprising 1.26 billion new units at 82 cents ($1.037 billion) and the REIT’s 1HFY2022 performance. The remaining amount will likely be financed by debt.
The accretion would take 1HFY2022 DPU to 2.49 cents on a pro forma basis, excluding the impact of Covid-related reliefs. The accretion includes the issuance of zero coupon promissory notes to the funds which are the vendors of Jem.
On behalf of LREIT, its Trustee will issue two promissory notes, one to ARIF3, and one to LLJP, two funds which own Jem. The promissory notes purpose is to return capital to ARIF3 and LLJP, and for payment of LREIT’s 31.8% stake in two funds.
LREIT’s current stake in Jem is held via two these two funds: a 24.8% interest in ARIF3 (which holds 75% interest in Jem) and 53% interest in LLJP (which holds 25% interest in Jem). Initially, LREIT had acquired a 3.75% stake in Jem in Oct 2020, and a 28.05% stake in Nov 2021, through these funds.
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When the funds divest Jem to LREIT, LREIT has to place back the money for the 31.8% stake to the investors of the fund. “The issuance of the promissory notes is in order to not to raise additional cash. So we put up a promissory note equal to what we invested (the 31.8%) so we don’t need to raise cash. These notes will expire as soon as the transaction completes,” explains Kelvin Chow, CEO of LREIT’s manager. “They have no impact on accretion to DPU,” he adds.
Jem is a well-known dominant mall in Jurong East. Jem's retail and office together have a WALE of 5.9 years by gross rental income, due to a 30-year lease by the Ministry of National Development (MND). Hence Jem will raise LREIT’s WALE from 8.4 years to 8.9 years. The WALE for the mall itself is around three years, Chow says. Some 24% of gross rental income is from F&B, he adds.
Chow says that LREIT will continue to be Singapore-centric. “There are other assets managed by Lendlease, such as Paya Lebar Quarter, which we would like to target after we complete this [acquisition],” he reveals.
“We will continue to look at some assets to add to resilience of cash flow but most importantly we are more interested in Singapore assets because investors can have confidence in local assets rather than overseas assets which we will look at after the market reopens.”
