Westgate and Jem Closes For 2 Weeks

Westgate

Starting today Sunday 23rd May 2021, Westgate and Jem closes for 2 weeks. The reason for the closure is to perform deep cleaning as the authorities suspected there is ongoing transmission among the visitors to these two malls located at Jurong East.

Westgate was fully acquired by CapitaMall Trust (now Capitaland Integrated Commercial Trust) through the purchase of the balance of 70.00% of the units in Infinity Mall Trust which holds Westgate on 1st November 2018. As of 31st December 2020, the mall has estimated 246 tenants.

The other shopping mall Jem was not directly owned by Lendlease Global Commercial REIT (“LREIT”). LREIT acquired a stake in Jem through an investment of 5.0% equity stake in Lendlease Asian Retail Investment Fund 3 Limited (the “Fund”) on 1st October 2020.

Westgate and Jem Closes For 2 Weeks – What is The Impact?

Deep Cleaning Cost

At this point of writing, I am not sure who will bear the cost of the deep cleaning. The cleaning is a big feat given the size and lettable area of the malls. If the cost is bear by the managers of the mall, this will add on to the operating expenses which in turn erodes away distribution to unit holders.

Tenant Rebates

Since tenants are not able to operate, it is most likely the managers will provide certain form of COVID-19 assistance or rental rebates even though there is no confirm news at this point in time that they will do so. This means lesser gross revenue and also reduced amount for distribution to unit holders.

Shopper Traffic

Even though the malls will open after 2 weeks, I bet shoppers will shun the malls for a period of time given the fear of potential lurking around viruses.

Current Dividend Yield

CapitaLand Integrated Commercial Trust Share Price 21 May 2021

Based on Capitaland Integrated Commercial Trust’s current share price of S$2.05 and FY20 Distribution Per Unit of 8.69 cents, this translate to a current dividend yield of 4.24%.

Lendlease Global Commercial REIT Share Price 21 May 2021

Based on Lendlease Global Commercial REIT current share price of S$0.74 and FY20 Distribution Per Unit of 3.05 cents, this translate to a current dividend yield of 4.12%.

Opportunity For Investors

Should the share price fall when stock market opens tomorrow, this poses an opportunity for interested investors of Capitaland Integrated Commercial Trust and Leadlease Global Commercial REIT to buy upon weakness.

Lendlease Commercial REIT Jem Acquisition

Lendlease Commercial REIT Jem Acquisition

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.

Lendlease Global REIT Portfolio

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%.

Lendlease Global REIT Share Price 2 Oct 2020

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.