Lendlease Global Commercial REIT (Lendlease REIT) had announced to its unitholders of their intention to acquire the remaining 68.2% interest in Jem, a large sub-urban mall cum office complex located in Jurong East. An extra-ordinary general meeting would be held on 7 Mar 2022 with regards to this acquisition.
Post-acquisition wise there will be dramatic shifts in the entire Lendlease REIT’s portfolio. Here are some selected highlights:
- The acquisition would increase Lendlease REIT itself by 157% by valuation (from SGD 1.4bn to SGD 3.6bn).
- The Jem property (both retail and office) would form a substantial part of the portfolio by valuation (59.7%).
- Local exposure would be increased from 76.5% to 88% by valuation.
- Top ten tenants’ contribution by gross rental income (GRI) would be reduced from 57% to 41%.
The advantages of the acquisition include:
- A potential distribution-per-unit accretion of up to 10.5% (for 1H FY2022 pro forma effects).
- A 0.5-year increase of weighted average lease expiry (from 8.4 to 8.9, based on net lettable area as at 31 Dec 2021).
- Improved diversification of trade sector mix by GRI.
The Bedokian’s Take #1: Jem
Jem is located next to Jurong East MRT station, deemed as one of the busiest MRT stations in Singapore. Its competing malls nearby are Westgate, JCube and IMM, which all are, ironically, owned by CapitaLand Integrated Commercial Trust. As such, having good quality tenants and tenant mix is important to maintain the mall’s competitive advantage. In this aspect, Jem has some unique brand names not in the other three malls like Ikea, Books Kinokuniya, Courts and Din Tai Fung.
Jem’s office space is fully leased to the Ministry of National Development under a 30-year master lease, with a rent review of every five years. This will bring a stable rental cashflow as the ministry is one of the top ten contributing tenants by GRI.
The Bedokian’s Take #2: The Jurong Area
Usually seen as “just a huge industrial estate”, the Jurong area has transformed/is transforming into a huge residential (Jurong East, Jurong West and the upcoming Tengah), commercial (Jurong Gateway, Jurong Lake District) and industrial (Jurong Innovation District and Tuas extension) locations. These developments give Jem (and the other malls around Jurong in general) a slight advantage over other suburban malls in terms of potential footfall. In summary, the malls in Jurong are having pluses of suburban and prime retail ones.
The Bedokian’s Take #3: Lendlease REIT’s Potential Growth
While the taking over of Jem will pose a huge change in Lendlease REIT’s make-up in terms of geographical and the retail/office proportion, it is still a “young” REIT with room to grow, with potential new properties being added in the future. The sponsor, Lendlease Corporation Limited, is a part of Lendlease Group, which is a global property developer and manager, and this ensures a stable pipeline.
Though there are other known Lendlease properties here in Singapore, the REIT’s principal investment strategy is global in nature, hence we may see the REIT’s geographical and retail/office make-up change again with a new acquisition.
As our Bedokian Portfolio contains Lendlease REIT, and given the above three “takes”, we would be inclined in adding our positions, should the preferential offer/rights option be given.
Disclosure
Bought Lendlease REIT at:
SGD 0.88, Sep 2019 (IPO)
SGD 0.91, Jan 2020
SGD 0.55, Mar 2020
Reference
Circular to Unitholders in relation to the Proposed Acquisition of the remaining interests in Jem. 14 Feb 2022. https://www.lendleaseglobalcommercialreit.com/-/media/asia/lendlease-global-commercial-reit/investor-relations/publications/2022/circular_final_presentations_publications.pdf
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