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Lendlease Global Commercial REIT - Phillip Securities 2022-02-23: Delivering A JEM As Promised

LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU) | SGinvestors.io LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)

Lendlease Global Commercial REIT - Delivering A JEM As Promised

  • Proposed acquisition of the remaining 68.15% stake in JEM is marginally accretive at 0.1% and will double Lendlease REIT (SGX:JYEU)’s AUM and market capitalisation, increasing its visibility and investor relevance.
  • Strong tenant demand from JEM’s dominant positioning in the Jurong East catchment and stable income from the office component will help to anchor Lendlease REIT’s portfolio, forming 58% of FY23e NPI.
  • Maintain ACCUMULATE and DDM target price of S$0.94 for Lendlease REIT.
  • We tweak our forecast to incorporate the acquisition of the remaining 68.15% stake i n JEM. FY22e/23e DPUs have been increased by 1.7%/0.3% while FY24-26e DPUs were lowered by 0.4-1.1% due to the enlarged share base. The current share price implies FY22e DPU yields of 6.0%.



What’s New?


Proposed acquisition of the remaining 86.15% stake in JEM.

  • JEM is a suburban integrated development located in Jurong East with a total NLA of 892,502 sq ft. The 6-storey retail mall accounts 65.1% of NLA with the remaining 34.9% in a 12-storey Grade A office space which is fully leased to the Ministry of National Development of Singapore until 2045.
  • Lendlease REIT acquired its first 3.75% stake in JEM in Oct 20 and picked up an additional 28.1% stake over Aug-Sep 21, taking its stake to 31.85%. The total acquisition cost of S$2,015mil is based on the agreed property value of S$2,079mil (100% basis) and will increase Lendlease REIT’s deposited property by 2.1x from S$1.7bn to S$3.6bn.
  • The acquisition will be financed through a combination of debt and equity and could enlarge the share base by 100-121%. The proposed acquisition is subject to shareholders’ approval at an EGM which will be held on 7 March 2021. If approved at the EGM, completion of the acquisition is expected to materialise before 15 May 2022.


What do we think?

  • The proposed acquisition will double AUM and market capitalisation, making it one of the top 20 largest S-REITs, increasing Lendlease REIT’s visibility and investor relevance.
  • JEM is one of the dominant malls in the Jurong East, pulling from a catchment of approxima tely 1.1mil residents as of 2020.
    • JEM’s retail occupancy was 100% as at 31 Dec 21 and remained above 98% throughout the pandemic. Despite the 100% occupancy, the manager managed to increase revenue for the property by creating 1,500 sq ft in additional NLA at Level 1 and Basement 1.
    • The office component is fully leased to the Ministry of National Development on a 30-year lease ending in 2045. The lease is subject to a rent review every 5 years and contributes 20% and 35% of JEM’s GRI and NLA for the year ended 31 December 2021.
  • Strong tenant demand from JEM’s dominant positioning in the Jurong East catchment and stable income from the office component will help to anchor Lendlease REIT’s portfolio, forming 58% of FY23e NPI. Acquiring 100% of JEM allows Lendlease REIT to qualify for tax transparency on the property, resulting in tax savings.
  • The large quantum of the acquisition necessitates equity fund raising, which carries a higher cost of capital, making this leg of the JEM acquisition less accretive compared to previous rounds. Based on our forecast, the acquisition of the remaining 86.15% stake in JEM is marginally accretive at 0.1%, in line with the pro-forma DPU accretion of 0.1-3.0%.

Maintain ACCUMULATE on Lendlease REIT with DDM target price of S$0.94






Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2022-02-23
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 0.940 SAME 0.940



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