Lendlease Global Commercial REIT (LREIT SP)    BUY

Persevering In Expansion Through Increasing Stake In Jem
Analysts: Jonathan Koh, CFA   Tel: (65) 6590 6620

  • Lendlease Global Commercial REIT (LREIT) has entered into sale and purchase agreements to increase its effective stake in Jem from 3.75% to 31.8% through two transactions:
    1. To acquire 53.0% interest in Lendlease Jem Partners Fund (LLJP) from third party vendors for S$159.1m.
    2. To acquire 5.0% interest in Lendlease Asian Retail Investment Fund 3 (ARIF3) from Lendlease International for S$45.0m. LREIT may also acquire up to 19.8% interest in ARIF3 from other third-party investors for S$178.2m (subject to existing investors of ARIF3 triggering pre-emptive rights after LREIT has obtained unitholders approval during EGM).
  • The acquisition is based on an agreed market value of Jem at S$2,077.0m, which is a discount of 0.4% to the appraised value.
  • Jem is an integrated office and retail asset located in Jurong Gateway (touted to be Singapore second CBD), the commercial hub of the Jurong Lake District. It has direct connectivity to both the Jurong East MRT interchange station and bus interchange and is near amenities, such as the Ng Teng Fong General Hospital. It is one of the largest suburban malls in Singapore with six levels of retail space. Its retail tenants include IKEA, FairPrice Xtra, Cathay Cineplexes, Don Don Donki, H&M, Koufu, Uniqlo and Courts. Essential services, such as F&B, services, supermarket and hypermarket, account for 58% of its retail NLA. Its office component comprises 12 levels of office space fully leased to the Ministry of National Development (MND) with long WALE of 24 years.
  • The acquisition increase AUM by 18% to S$1.8b. Jem will account for 20.9% of AUM. Reliance on 313@Somerset will be reduced from 67.6% to 55.1% of AUM. Suburban retail will account for 16.2% of AUM, which provides resiliency.
  • Strong catchment from the estimated population of 1.1m residents. Jurong Innovation District, a 600ha advanced manufacturing hub, will create over 95,000 new jobs when it is fully developed and completed in 2022. The upcoming 700ha Tengah Forest Town is set in lush greenery and will add 42,000 new homes (public housing: 30,000 units, private properties: 12,000 units) upon completion. It has a car-free town centre and 20% of land will be dedicated green spaces. The area will be served by the new Jurong Region MRT Line, which will open in stages from 2027 onwards.
  • The acquisition is accretive to pro forma FY20 DPU by 3.6%. NAV per unit remains unchanged at S$0.85. The acquisition is funded by additional bank borrowings and issuance of perpetual securities (LREIT completed issuance of S$200m 4.2% perpetual securities last week).
  • The acquisition is subject to LREIT unitholders’ approval during EGM, which is expected to complete by 30 Sep 21.