Lendlease Reit to acquire remaining interest in Jem mall at S$2.08b agreed property value

LENDLEASE Global Commercial Reit (LReit) JYEU : JYEU 0%, which currently indirectly holds a 31.8 per cent stake in Jem mall, has proposed to acquire the remaining interest in the prime Jurong property at an agreed property value of S$2.079 billion.

If the deal goes through, the real estate investment trust (Reit) will come to own a direct 100 per cent stake in Jem, which will, in turn, bump its total portfolio net lettable area up by a substantial 70 per cent, to around 2.2 million square feet.

The enlarged portfolio is also expected to lift its 2021 financial year net property income to S$147.8 million, from S$56.9 million, resulting in a net property income yield of 4.2 per cent. 

Laying these out in a late night bourse filing on Monday (Feb 14), the manager said the transaction, which is expected to provide 10.5 per cent distribution per unit (DPU) accretion, could be completed by as early as May 15 this year, if all goes to plan.

The agreed property value was arrived at on a "willing buyer and willing seller" basis after taking into account 2 independent valuations of Jem as at Dec 31, 2021, it stated.

Jones Lang LaSalle Property Consultants gave the integrated office and retail asset located at 50 and 52 Jurong Gateway Road, next to Jurong East MRT Station and bus interchange, a S$2.086 billion valuation, while CBRE evaluated it to be worth S$2.063 billion.

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The property purchase consideration of S$2.079 billion therefore comes at a discount of some 0.3 per cent or a S$7 million discount to the appraised value.

Notwithstanding that, the manager said LReit would benefit from recurring tax savings with the acquisition, given its shift away from a fund structure to a "clean, simple structure", with LReit taking full control of Jem.

Currently, LReit holds an indirect interest in Jem through its 24.8 per cent interest in Lendlease Asian Retail Investment Fund 3 Limited (ARIF3), and 53 per cent interest in Lendlease Jem Partners Fund Limited (LLJP). ARIF3 and LLJP are both private funds owning 75 per cent and 25 per cent of Jem respectively.

As such, it does not benefit from tax transparency at the moment, the manager said, pointing out that LReit's aggregate corporate income taxes came up to S$5.6 million in FY2021.

Given that Jem has 6 levels of retail space and 12 levels of office space, which has been fully leased to the Ministry of National Development, the manager added that LReit will also benefit from a 30-year master lease with a rent review of every 5 years with the ministry, which will provide a "strong and stable" cashflow to unitholders.

Kelvin Chow, chief executive officer of the manager, added that the acquisition is a "natural transition" from the benefits and resiliency that the mall had shown throughout the Covid-19 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," he said.

The acquisition is estimated to cost LReit S$2.015 billion in total.

The manager said it intends for up to S$1.015 billion of the cost to be funded through equity fundraising, the structure and timing of which has not been decided upon.

This may involve a private placement of new LReit units to institutional and other investors, a non-renounceable preferential offering of new units to existing unitholders on a pro rata basis, or both, the manager noted.

The rest is to be funded through a combination of LReit promissory notes issued to one of the property vendors, the issuance of the consideration units to Lendlease International Pty Limited (LLI) or its nominee, debt financing, or issuance of perpetual securities as well as LReit's own cash reserves and internal resources. LLI is a direct, wholly-owned subsidiary of its sponsor Lendlease Corporation.

Meanwhile, the manager said Lendlease Corporation has "irrevocably committed" to invest some S$234 million. The amount comprises consideration units of about S$116 million in lieu of cash for the divestment of its stake in Jem and, in the event that the equity fundraising includes a preferential offering, up to S$117.8 million from subscription of its pro rata share and application for additional units.

The manager added that it is expected that ARIF3 and LLJP, as well as their respective intermediate holding companies, will be wound up if the acquisition happens as Jem is the main asset of these funds and holding companies.

Unitholders of LReit will vote on the proposed acquisition at an extraordinary general meeting to be convened by electronic means on Mar 7.

Units of LReit closed up 1.8 per cent or S$0.015 at S$0.84 after the announcement on Tuesday.

READ MORE: 

• Despite 'global' in its name, LReit more focused on Singapore expansion for now

• Lendlease Reit raises H1 DPU to S$0.024, revenue dips 5.8%

• Brokers' take: ESR-Reit, ARA Logos, Lendlease Global, Cromwell E-Reit are UOBKH's top contenders for FTSE Russell's real estate index

• Lendlease Global Reit proposes to raise stake in Jem to up to 31.8%