Lendlease Global Commercial REIT (LREIT) is raising its bet on suburban retail with a S$2.08 billion ($1.54 billion) deal that gives it full ownership of a mixed-used complex in Singapore’s Jurong East area.
The SGX-listed REIT has agreed to purchase a 68.2 percent stake in Jem, a commercial project connected to Jurong East MRT station, from funds controlled by its sponsor, Australian developer Lendlease, just over half of a year after the trust had upped its holding in the complex to 31.8 percent, according to a statement to the bourse.
In a press release, Kelvin Chow, chief executive of LREIT’s manager, positioned the investment as expanding the trust’s holdings in a real estate segment that has proved its ability to deliver under challenging conditions.
“The acquisition of Jem is a natural transition for us as we recognise its benefits and resiliency throughout the pandemic,” Chow said. “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.”
Betting on the Burbs
LREIT is upping its investment in Jurong East after the trust’s latest earnings report released last week showed that gross revenues dropped 5.8 percent in the second half of 2021 compared with the same period a year earlier.
The REIT’s manager attributed the slide to S$39.2 million in gross revenue from July to December 2021 to lower rental reversions on its 313@Somerset mall in Singapore’s Orchard Road area and to foreign exchange challenges facing an Italian retail asset in its portfolio.
Located among some of Singapore’s largest public housing estates in the city-state’s central region, Jem features a six-storey shopping mall and 12 levels of office space across 1,164,166 square feet (108,155 square metres) of gross floor area and 892,502 square feet of net lettable area.
The proposed deal values the property at S$2,329 ($1,729) per square foot of NLA, lower than JLL’s independent valuation of S$2,337 but higher than CBRE’s assessment of S$2,311.
The asset is on a leasehold of 99 years dating from 27 September 2010 and has 100 percent committed occupancy with a weighted average lease expiry of 5.9 years. Key tenants include Swedish furniture chain IKEA, hypermarket FairPrice Xtra and Japanese department store Don Don Donki.
The 2013-vintage Jem has undergone asset enhancement initiatives, including reconfiguration of the former Robinsons department store space and generation of additional NLA in the basement food hall, creating an opportunity to optimise tenant mix and augment overall rental rates, the manager said.
The trust plans to finance its acquisition of the stake in Jem from Lendlease Commercial Investments and Lendlease Retail Investments, the pair of funds that are currently its partners in the project, through a combination of equity fundraising, debt financing, cash reserves and other sources, according to the exchange statement.
LREIT currently holds a 31.8 percent indirect interest in Jem through its 24.8 percent stake in Lendlease Asian Retail Investment Fund 3 and its 53 percent stake in Lendlease Jem Partners Fund. Both Lendlease funds are expected to be wound up upon completion of the transaction.
The trust’s manager said the acquisition would give LREIT more exposure to the suburban retail segment and allow Jem to enjoy better tax transparency than under its current ownership structure, which involves indirect holding of the asset through the funds.
The Lendlease REIT is making its Jurong East investment just a few weeks after Singapore’s largest real estate organisation, CapitaLand, agreed to buy the JCube mall, located just five minutes’ walk to the west, from CapitaLand Integrated Commercial Trust for S$340 million.
On the same day it revealed its bet on Singapore’s suburbs, LREIT also announced upgrades to some centre-city assets, including 313@Somerset, a 288,277 square foot mall on Singapore’s Orchard Road, which is the trust’s largest asset.
In a separate announcement to the exchange, LREIT’s manager said 313@Somerset would add 10,200 square feet of gross floor area — including two prime units on the ground floor — under an Urban Redevelopment Authority scheme permitting an increased plot ratio. The plan coincides with a tenant refresh that includes a new 7,100 square foot Puma flagship store.
“The additional gross floor area allows us to create a mall that connects with the surrounding environment, communities and our partners to deliver exceptional experiences for all our stakeholders,” Chow said. “The extra space has also enabled us to bring to the market novel concepts through collaborations with more retail partners.”
In addition to the floor expansion and refreshed tenant mix, LREIT will develop the nearby Grange Road car park into a multi-functional event space hosting concerts, films and events.
The trust, which Lendlease launched in 2019 via a S$1 billion IPO, also holds Sky Complex, a 985,967 square foot set of three office buildings in Milan, which accounts for roughly 30 percent of its portfolio.