You probably have heard about the Lendlease Commercial REIT Jem Acquisition.
Lendlease Commercial REIT acquired a stake in Jem via a 5% interest in Lendlease Asian Retail Investment Fund 3, which holds a 75.0% indirect interest in Jem. The share purchase consideration was approximately S$45.0 million. Including the acquisition fee of S$0.4 million payable to the manager and other fees and expenses of S$0.9 million, the total cost of this acquisition is approximately S$46.3 million.
Lendlease Commercial REIT was listed on 2nd October 2019. Its initial portfolio comprises a leasehold interest in, 313@somerset, a retail property located in Singapore and a freehold interest in Sky Complex, which comprises three office buildings located in Milan. The portfolio has a total net lettable area of approximately 1.3 million square feet, with an appraised value of S$1.4 billion as at 30 June 2020.
What I didn’t like about Lendlease Commercial REIT was that 313@Somerset was its only retail property in Singapore. The acquisition of Jem was a surprise to me as I believe the funds can be better used to add Parkway Parade or Paya Lebar Quarters to its Singapore portfolio.
Is it worth buying into Lendlease Commercial REIT right now? Let us look at its latest financial results and pro forma DPU, NAV and gearing ratio.
FY2020 Full Year Financial Results
Lendlease Commercial REIT FY20 full year financial results is not that encouraging. It is difficult to assess whether the REIT is performing as it is the first year since IPO. Moreover, the COVID-19 pandemic struck all REITs in March 2020.
Gross revenue for FY2020 was at S$55.5 million, 13.1% lower than Forecast, on the back of a lower rental income from 313@somerset in the fourth quarter due to the implementation of relief measures under the COVID-19 (Temporary Measures) Act 2020 (“COVID-19 Act”) and the rent waivers provided to retail tenants.
Net property income was S$40.3 million for FY2020.
The Net Asset Value (“NAV”) per unit is S$0.85. Pro forma NAV per unit remains the same.
| FY2020 (S$‘000) |
Forecast (S$‘000) |
Change (%) | |
| Gross Revenue | 55,536 | 55,536 | (13.1) |
| Net Property Income | 40,289 | 47,722 | (15.6) |
| Distributable Income | 35,672 | 44,671 | (20.1) |
| Distribution Per Unit (“DPU”) (S$ cents) | 3.05 | 3.80 | (19.7) |
Debt
Gearing ratio of 35.1% with average running cost of debt of 0.86% p.a. fixed for 3.1 years. With the acquisition of 5% stake in Jem, gearing ratio will increase to 36.9%.
Occupancy
As of 30 June 2020, the overall portfolio occupancy stood at 99.5%.
Current Dividend Yield
Based on the current closing price of S$0.69 and FY20 full year DPU of 3.05 cents, this translate to a current dividend yield of 4.42%.
Pro forma DPU is expected to be 3.07 cents. Based on the closing price of S$0.69, this translate to a current dividend yield of 4.45%.
Summary
Is the Lendlease Commercial REIT Jem Acquisition worth it?
In my opinion, the acquisition has little benefits to Lendlease Commercial REIT. The funds can be better utilised or reserve for future addition of Parkway Parade and Paya Lebar Quarters to its portfolio.
Here is a summary
- Gearing ratio will increase to 36.9% which means increased debt.
- Pro forma NAV per unit remains the same, no value added.
- Pro forma DPU is expected to be 3.07 cents, an improvement of 0.02 cents over 3.05 cents.