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Lendlease Global Commercial Reit in 'no hurry' to buy assets
FROM Jem to Paya Lebar Quarter, Lendlease has built a number of plum projects in Singapore that could eventually become acquisition targets for the new Lendlease Global Commercial Reit.
But the Reit manager is in "no hurry" to buy more assets and will focus for now on getting maximum value out of a S$1.4 billion starting portfolio that comprises Orchard strip mall 313@somerset and Sky Complex, a Grade A office in Milan.
Tony Lombardo, chairman of the Reit manager and chief executive of Lendlease Asia, told The Business Times on Tuesday: "Our assets in Singapore, they're already sitting in private funds and the like. It was very hard for us to access those products today. Hopefully, over time, as we work with various investors, the Reit may become the exit vehicle for PLQ (Paya Lebar Quarter) and Jem and the like.
"For us it's something that we will look to over time... It really comes down to our other investors and when they would like to potentially exit," he added, noting that Lendlease owns 30 per cent of PLQ. The other 70 per cent is held by the Abu Dhabi Investment Authority.
Mr Lombardo was speaking to reporters ahead of the planned initial public offering (IPO) of Lendlease Global Commercial Reit on the mainboard of the Singapore Exchange.
The Reit seeks to raise S$740 million through the offering of 454 million cornerstone units, 365 million placement units and 22.7 million units for public allocation.
The units are priced at S$0.88 apiece to deliver a forecast distribution yield of 5.8 per cent for the 12 months to June 30, 2020 (FY2020). A distribution yield of 6 per cent is expected for FY2021.
At S$0.88 per unit, the Reit will command a market capitalisation of S$1 billion. Net asset value per unit is S$0.8134.
Lendlease, the Reit sponsor, will own 28 per cent of the Reit's units if the over-allotment option is not exercised, and 25.1 per cent if it is.
The public offer opened on Wednesday night and closes at noon next Monday. Trading will commence on Oct 2, at 2pm.
Mr Lombardo said: "Ultimately, Lendlease is branding a global commercial Reit. That differentiates it from all the other Reits in the Singapore market today, and it is to align itself to Lendlease, which is a global development and construction and funds management player. We've been clear that this will be the only Reit that Lendlease is going to list in Singapore, so we wanted to have a global mandate."
Lendlease hails from Sydney, but the land Down Under is not yet represented in the Reit's IPO portfolio.
Mr Lombardo explained: "When we looked at our Australian assets and what we could put in the Reit, there wasn't anything that we had that was a completed asset from a development perspective that made sense to achieve the returns we were wanting to achieve."
The Reit's largest tenant is Sky Italia, the satellite television platform which accounted for 28.9 per cent of the Reit's gross rental income in June.
Sky Italia's parent, Sky Limited, was acquired by Comcast last year.
Sky Complex is fully leased to Sky Italia under a triple net lease structure in which all operating expenses are borne by the tenant, with an inflation-linked rental step-up clause.
Ng Hsueh Ling, non-executive director of the Reit manager and a former chief executive of Keppel Reit Management, said: "The 13-year lease with Sky gives us resilient income, almost a bond-like structure for 13 years."
Distributions from the Milan property are also tax-exempt, she said: "So really it's something that's very easy for people to understand and to model.
Mr Lombardo added: "Lendlease has been in Italy for some over 30 years and built a number of buildings in that time, so we've got strong capability on the ground and we see long-term, Milan being a key gateway city that will benefit as the city continues to grow."
In Europe, the Milan metropolitan area is the fourth largest economy, behind only Paris, London and Madrid, said Kelvin Chow, chief executive of the Reit manager and a former chief financial officer of Keppel Reit Management.
Mr Chow added: "Milan is considered to be one of the top destinations for the office sector in Europe by investors and office occupiers. Year 2018 saw a take-up of over four million sq ft, the highest ever recorded and with a positive outlook."
Meanwhile, the Singapore government has announced plans to refresh the Orchard Road streetscape, and this could benefit 313@somerset, he said.
Two Christmases ago, when the Grange Road car park behind the mall was closed for a month of night festivities, 313@somerset benefited from higher traffic as well, said Josh Liaw, the Reit manager's executive general manager of finance: "So we're very excited."
313@somerset has also been proactive in attracting popular online-to-offline retailers.
"Take for example, Love, Bonito," Mr Liaw said. "They started as an online retailer. They picked 313@Somerset as their first physical store, and they've done very well. The next was Pomelo from Thailand. They opened their flagship store in 313, their first store outside their home base of Thailand."
Close to 60 per cent of leases by net lettable area (NLA) for 313@somerset have step-up structures for FY2020, with an average rental escalation of 3 per cent.
Ms Ng said: "Typical retail leases are three years. So you can expect at least one third of leases to be up for renewal, this is so that the mall is kept fresh and the offerings are kept vibrant and new.
"We love long leases in office but we don't like long leases in malls."
The cap rates used by independent valuers for 313@somerset were 4.25 per cent and 4.5 per cent. For Sky Complex, the cap rates were 5.5 per cent and 5.75 per cent.
In its first two years after the IPO, the Reit manager will take its base fee and performance fee in units instead of cash.
Mr Chow said: "It's more aligned with unit holders that's why we try to receive the fee in units."
Lendlease Global Commercial Reit's aggregate leverage is 36.4 per cent. All the debt is unsecured.
The IPO prospectus does not include historical financial data for the Reit's properties.
Mr Chow explained: "We bought over the properties from a fund. They keep their books and numbers and there's no reliability on how they maintain their books and so we don't want to disclose that."
Instead, the Reit manager derived its income forecasts and projections by working with the property managers to give a reliable cashflow forecast, he said.
DBS is the sole financial adviser for the IPO, with Citibank as joint bookrunner and underwriter.