Lendlease Reit to acquire remaining stake in Jem mall at $2.08b agreed value

SINGAPORE (THE BUSINESS TIMES) - Lendlease Global Commercial Reit (LReit), which currently indirectly holds a 31.8 per cent stake in Jem mall, has proposed to acquire the remaining interest in the prime Jurong property at an agreed value of $2.079 billion.

If the deal goes through, the real estate investment trust (Reit) will come to own a direct 100 per cent stake in Jem, which will, in turn, bump its total portfolio net lettable area up by a substantial 70 per cent, to around 2.2 million sq ft.

The enlarged portfolio is also expected to lift its 2021 financial year net property income to $147.8 million, from $56.9 million, resulting in a net property income yield of 4.2 per cent.

In a bourse filing on Monday night (Feb 14), the manager said the transaction, which is expected to provide 10.5 per cent distribution per unit accretion, could be completed by as early as May 15 this year, if all goes to plan.

The agreed property value was arrived at on a "willing buyer and willing seller" basis after taking into account two independent valuations of Jem as at Dec 31, 2021, it stated.

Jones Lang LaSalle Property Consultants gave the integrated office and retail asset, located next to Jurong East MRT Station and bus interchange, a $2.086 billion valuation, while CBRE evaluated it to be worth $2.063 billion.

As such, the property purchase consideration of $2.079 billion comes at a discount of some 0.3 per cent, or $7 million, to the appraised value.

Notwithstanding that, the manager said LReit would benefit from recurring tax savings with the acquisition, given its shift away from a fund structure.

Currently, LReit holds an indirect interest in Jem through its 24.8 per cent interest in Lendlease Asian Retail Investment Fund 3 Limited (ARIF3), and 53 per cent interest in Lendlease Jem Partners Fund Limited (LLJP). ARIF3 and LLJP are both private funds, with ARIF3 owning 75 per cent and LLJP the remaining 25 per cent of Jem.

Therefore, it does not benefit from tax transparency at the moment, the manager said, pointing out that LReit's aggregate corporate income taxes came up to $5.6 million in FY2021.

Given that Jem has six levels of retail space and 12 levels of office space, which has been fully leased to the Ministry of National Development, the manager added that LReit will also benefit from a 30-year master lease with a rent review of every five years with the ministry.

The acquisition is estimated to cost $2.015 billion in total.

The manager said it intends for up to $1.015 billion of the cost to be funded through equity fund-raising, the structure and timing of which has not been decided upon.

This may involve a private placement of new LReit units to institutional and other investors, a non-renounceable preferential offering of new units to existing unit holders on a pro rata basis, or both, the manager noted.

The manager said that Lendlease Corporation has also "irrevocably committed" to invest about $234 million. The amount comprises consideration units of about $116 million in lieu of cash for the divestment of its stake in Jem and, in the event that the equity fund-raising includes a preferential offering, up to $117.8 million from subscription of its pro rata share and application for additional units.

Unit holders of LReit will vote on the proposed acquisition at a virtual extraordinary general meeting to be convened on March 7.

Units of LReit closed down 0.6 cent, or 0.7 per cent, at 82 cents before the announcement.