Lendlease REIT Selling Office Zone of Singapore Complex to Keppel Funds for $359M

Lendlease Global Commercial REIT has agreed to sell the office component of a mixed-used complex in western Singapore to fund manager Keppel Ltd for S$462 million ($358.5 million).

The disposal of the office zone at Jem, a commercial development connected to Jurong East MRT station, will improve the financial position and bolster the capital structure of the SGX-listed trust while enhancing flexibility to support portfolio growth and increase focus on Singapore retail, Lendlease REIT’s manager said Monday in a filing.

After taking into account total divestment cost, the net cash proceeds from the divestment are estimated at S$459.4 million, resulting in an estimated net cash gain over the cost of investment of S$8.9 million, according to the manager. The net cash proceeds will be used to reduce the trust’s aggregate leverage ratio from 42.6 percent at the end of June to 35 percent upon disposal.

“The divestment of Jem Office marks an important milestone in reducing our leverage, strengthening our capital structure and reducing our interest expense,” said Guy Cawthra, CEO of the REIT’s manager. “Upon completion of the transaction, Singapore retail exposure will comprise over 85 percent of our portfolio by valuation.”

Jem Cutting

The 2013-vintage Jem’s office component comprises 12 levels of office space leased to Singapore’s Ministry of National Development for a period of 30 years commencing from 3 December 2014.

Lendlease REIT attained full ownership of Jem in 2022 after acquiring a 68.2 percent stake in the project from funds controlled by its sponsor, Australian developer Lendlease, in a S$2.08 billion deal. The dozen office floors have a net lettable area of 311,217 square feet (28,913 square metres), working out to S$1,484 ($1,151) per square foot at the agreed price.

Keppel is acquiring the offices on behalf of funds under its sustainable urban renewal strategy, the Temasek-backed firm said Monday in a release.

“The addition of Jem’s office component into the SUR strategy portfolio will position it well to benefit from the growth prospects of the Jurong Lake District, while leveraging Keppel’s proven expertise in strategic asset enhancement to support the tenant’s spatial and sustainability requirements,” said Bridget Lee, chief investment officer of real estate at Keppel.

The sustainable urban renewal strategy has raised S$4.3 billion to date and targets Asia Pacific value-add investments with the goal of decarbonising the built environment. The strategy is pursuing a pipeline of opportunities across real estate segments including commercial, living, life sciences, hospitality and logistics in Singapore, South Korea, Japan, Australia and China.

Fiscal Year Fizzle

Lendlease REIT’s gross revenue and net property income for the 12 months to the end of June fell 6.5 percent and 10 percent to S$206.5 million and S$148.8 million respectively, the manager said in a separate announcement.

The decline was attributed to the upfront recognition of supplementary rent in relation to a lease restructuring of Sky Complex, a 985,967 square foot set of three office buildings in Milan, that the trust received during the previous fiscal year. Adjusting for the supplementary rent, gross revenue and NPI rose 1.1 percent and 0.1 percent, according to the manager.

Property expenses were S$2.2 million higher at S$57.8 million compared with the prior year, impacted by the provision of what the manager termed “doubtful debts” for Singapore’s Cathay Cineplexes. Excluding that one-off provision, expenses remained broadly stable, it said.

Lendlease REIT’s portfolio valuation rose 2.2 percent to S$3.76 billion as committed occupancy stood at 92.1 percent at the end of the fiscal year.