The manager of Lendlease Global Commercial REIT (LREIT) has proposed to acquire the remaining interest it does not own in Jem, as well as the proposed acquisition of a 13.05% stake in Lendlease Asian Retail Investment Fund 3 Limited (ARIF3) on Feb 14.
Upon the completion of the proposed acquisition, LREIT will own a direct 100% stake in Jem, increasing the REIT’s exposure to the resilient suburban retail sector.
“The proposed acquisition of Jem will reduce asset concentration risk, with the single largest asset segment representing 46.8% of the enlarged portfolio’s aggregate value, as compared to 55.4% before the acquisition. It will also increase LREIT’s exposure to the resilient suburban retail sector from 16.3% to 46.8% post-acquisition, and increase exposure to non-discretionary trades from approximately 52% to approximately 59% by gross rental income (GRI),” says the REIT manager in a statement on Feb 14.
Jem has a committed occupancy of 100%, with quality tenants such as IKEA, FairPrice Xtra, Don Don Donki and Cathay Cineplexes. It also has a well-balanced tenant mix.
Its office component is also fully leased to MND with a 30-year master lease till 2045, which will provide a “strong and stable” cashflow to its unitholders.
In addition, the acquisition would allow Jem to enjoy tax transparency which it currently does not benefit from under a fund structure. The aggregate corporate income taxes under the fund structure stood at around $5.6 million in FY2021.
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Purchase consideration
The purchase consideration stood at $2.08 billion for the property and an approximate $116 million for the sale shares in ARIF3, which owns an indirect interest of 75.0% in the property.
The property consideration is approximately a 0.3% or $7 million discount to the appraised value as at Dec 31, 2021.
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The consideration for the sale shares in ARIF3 will be paid via the issuance of new units in LREIT. The REIT has proposed to issue up to 1.27 billion new units under an equity fund raising.
Proposed acquisition said to be DPU accretive
According to the REIT manager, the acquisition will result in a distribution per unit (DPU) accretion of 10.5%, based on the property’s net property income (NPI) sans the effects of Covid-19-related one-off expenses and rental abatements and expected credit loss against the adjusted 1HFY2022 base.
The accretive acquisition is said to “significantly enhance” the quality of LREIT’s portfolio.
Post-acquisition, LREIT’s total portfolio net lettable area (NLA) will increase by 70.0% to 2.2 million sq ft, with a longer weighted average lease expiry (WALE) of 8.8 years.
The enlarged portfolio is said to lift LREIT’s NPI for the FY2021 by almost 2.6 times to $147.8 million from $56.9 million, resulting in an NPI yield of 4.2%.
LREIT’s total deposited property is also expected to increase by 2.1 times to approximately $3.6 billion upon completion of the acquisition.
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Proposed equity fund raising
On this, the REIT manager says it intends to propose an equity fund raising, which may comprise a private placement of new LREIT units to institutional and other investors. It may also propose a non-renounceable preferential offering of new units to LREIT’s existing unitholders on a pro rata basis.
The net proceeds of the equity fund raising will partly fund the total cost of the proposed acquisition. Any remaining balance will be funded by the LREIT promissory notes issued to one of the property vendors, the issuance of the consideration units to Lendlease International (or its nominee), debt financing, and, or the issuance of perpetual securities as well as LREIT’s own cash reserves and internal resources.
Acquisition timeline
LREIT first acquired a stake in Jem at a purchase consideration of $45 million on Oct 1, 2020, where it entered into a share purchase agreement (SPA) with Lendlease International to acquire a 5.0% stake in Lendlease Asian Retail Investment Fund 3 Limited.
On June 7, 2021, LREIT upped its stake in Jem through the acquisition of a 53% stake in Lendlease Jem Partners Fund for $153.1 million, as well as the acquisition of up to 19.8% interest in Lendlease Asian Retail Investment Fund 3 (ARIF3) for a total of up to $178.2 million.
“The acquisition of Jem is a natural transition for us as we recognise its benefits and resiliency throughout the pandemic. The suburban retail market continues to perform well, and we believe that the Jurong region and its upcoming development plans will provide a great catchment for Jem,” says Kelvin Chow, CEO of the manager.
“This acquisition is testament of the strong support from our sponsor as well as LREIT’s ability to tap on their strong platform and resources,” he adds.
Units in LREIT closed 3 cents lower or 3.51% down at 82.5 cents on Feb 14.
