Lendlease Reits Possible Acquisition Plq Mall Overall Positive Dbs

28 Sep 2021 at 12:14pmHaving recently reported on the possibility of Lendlease Global Commercial REIT acquiring a 70% stake in PLQ Mall, DBS Group Research maintains its “buy” call on the REIT with a target price of 75 cents. According to DBS in its Sept 23 note, the potential acquisition is an “overall positive” for Lendlease REIT. This is following statements from Tony Lombardo, CEO of Lendlease Group, the REIT’s sponsor, who disclosed that ADIA (Abu Dhabi Investment Authority) is looking to sell its 70% stake in PLQ Mall. The remaining 30% is held by Lendlease. Lendlease REIT’s spokespeople declined to comment on the issue but it was reported by the Australian Financial Review that, with over 340,000 sq ft of retail space, the asset is valued at over $1 billion. This is notable news considering that Lendlease REIT’s asset base has been declining since its initial public offering (IPO) in October 2019. It is currently at $1.8 billion, from its peak of $3.7 billion, according to DBS. Read on: New Comcentre breaks ground as Singapore’s first end-to-end carbon neutral developmentAdvertisementAdvertisement However, the asset pool of Lendlease REIT is expected to decline further with the divestment of the JEM office for $462 million, which was announced in late July. This is set to be completed by the end of 2025. The sale is anticipated to reduce the REIT’s gearing from 42.6% now to 35% after the proceeds are fully utilised to cope with the debt. It is expected that the REIT will have sufficient capacity to fuel its growth ambitions. The PLQ mall has long been in the sights of Lendlease REIT as a property in its right of first refusal pipeline. The mall has entered its second renewal cycle and is thus stabilised. DBS states that the timing of the acquisition may be premature, yet the opportunity to purchase a quality mall could be too good to pass. This is particularly so during a time of low interest rates, with SORA sitting at around 1.45%. If a deal is structured with half equity and half debt, DBS estimates that, with a net property income yield of 4.5%, based on asset value of $800 million (70% stake), the DPU hurdle will be passed. This ensures that the REIT’s gearing remains below the 40%, which is already below its current level. Read also: Elegant Group’s Jun Jie Development awarded $90 mil tender for Tanjong Katong Complex redevelopmentAdvertisement Assuming the acquisition materialises, DBS anticipates an overall positive impact on Lendlease REIT. The addition of one of the newest and best-built malls in the eastern area of Singapore will assist in establishing the REIT as an emerging pure-play retail S-REIT. This is continued optimism from Lendlease REIT, following the news of Elegant Group’s Jun Jie Development being awarded the $90 million tender for Tanjong Katong Complex’s redevelopment, which was first reported by The Edge Singapore on Sept 29.

DBS Group Research has affirmed its “buy” rating and 75 cents target price for Lendlease Global Commercial REIT, despite recent reports suggesting its plans to acquire a 70% stake in PLQ mall. In a note on Sept 23, DBS stated that this potential acquisition is an “overall positive” for the REIT. According to Tony Lombardo, CEO of Lendlease Group, ADIA (Abu Dhabi Investment Authority), the REIT’s sponsor, is looking to sell its 70% stake in PLQ mall. The remaining 30% is owned by Lendlease. The Australian Financial Review reports that the asset, which spans over 340,000 sq ft, is valued at over $1 billion. This news is significant as Lendlease REIT’s asset base has declined since its initial public offering (IPO) in October 2019 and currently stands at $1.8 billion, down from its peak of $3.7 billion, according to DBS. Read also: New Comcentre breaks ground as Singapore’s first end-to-end carbon neutral developmentAdvertisementAdvertisement However, the REIT is set to offload another asset – the JEM office – for $462 million, which was announced in late July and is expected to be completed by the end of 2025. This sale is likely to reduce the REIT’s gearing from 42.6% to 35% after the proceeds are used to pay off its debt. This will allow the REIT to have sufficient capacity to pursue its growth plans. PLQ mall has long been on Lendlease REIT’s radar as a property in its right of first refusal pipeline. The mall is currently in its second renewal cycle and is deemed to be stabilised. DBS notes that the timing of the potential acquisition may be early, but the opportunity to acquire a quality mall may be too good to pass up, especially with interest rates currently low, with SORA at around 1.45%. Assuming a deal is structured with 50% equity and 50% debt, DBS estimates that the DPU hurdle will be met, assuming a net property income yield of 4.5%, based on the asset’s value of $800 million (70% stake). This will keep the REIT’s gearing below 40%, which is already lower than its current level. Read also: Elegant Group’s Jun Jie Development awarded $90 mil tender for Tanjong Katong Complex redevelopmentAdvertisement In the event of the acquisition materialising, DBS expects a positive impact on Lendlease REIT. The addition of one of the most modern and well-built malls in the eastern part of Singapore will solidify the REIT’s position as an emerging pure-play retail S-REIT. This follows Lendlease REIT’s recent optimism, following news that Elegant Group’s Jun Jie Development secured the $90 million tender for the redevelopment of Tanjong Katong Complex, which The Edge Singapore first reported on Sept 29.

Upon the closure of the tender in July, a total of seven bidders vied for the highly coveted Tampines Street 62 site. Spanning an impressive 301,392 square feet, this plot of land has been approved for the construction of up to 700 residential units. What makes this site even more attractive is its prime location next to Tenet, a 618-unit executive condominium (EC) developed by Qingjian Realty, Santarli Realty, and Heeton Holdings. In fact, these three developers had also successfully secured the adjacent site in August 2021 for a whopping $422 million, equating to $659 per square foot per plot ratio (psf ppr). As an added bonus, interested buyers can visit the Aurelle of Tampines Showflat to get a glimpse of the luxurious residential development.