Lendlease Reits Possible Acquisition Plq Mall Overall Positive Dbs

2020/10/02 18:54SINGAPORE (Oct 2): DBS Group Research is maintaining its “buy” rating on Lendlease Global Commercial REIT with a target price of 75 cents after reports that it is considering acquiring a 70% stake in Paya Lebar Quarter (PLQ) mall.The potential acquisition is considered an “overall positive” for the REIT, says DBS in a note dated Sept 23 by analyst Derek Tan. Lendlease Global Commercial REIT comprises a portfolio of four office properties with an aggregate net lettable area of 1.5 million sq ft.Photo: Lendlease Global Commercial REITDBS says that the event could be early, but is considered a great opportunity for the REIT to acquire a quality building at a good price. It is also an opportunity to use the low interest rate environment to make a value-accretive acquisition.Based on its assessment of the interest rate environment, DBS believes that the accretive deal will not only be good for the REIT, but also maintain the gearing of below 40%.Assuming a net property income (NPI) yield of 4.5% on an asset value of $800 million (for the 70% stake) and a half debt, half equity structure, DBS estimates that the DPU of Lendlease REIT would exceed the hurdle rate for the acquisition of the stake.If the acquisition goes through, DBS believes that PLQ Mall will be a good addition to Lendlease REIT, as it is one of the newest and best-built malls in the east of Singapore. This acquisition could also reinforce Lendlease REIT’s position as a leading pure-play retail REIT in Singapore.Lendlease Global Commercial REIT is part of the Lendlease Group, and its sponsor, Abu Dhabi Investment Authority, is reportedly looking to sell its 70% stake in PLQ Mall. Lendlease Group CEO Tony Lombardo reportedly disclosed the potential divestment in a recent interview with the Australian Financial Review. According to the Australian Financial Review, the asset measures more than 340,000 sq ft and is valued at more than $1 billion.Lendlease REIT first entered the S-REIT market in October 2019 with an IPO that raised $768.7 million. The REIT’s existing portfolio consists of four office properties located in key markets in Asia. This includes the 190-metre tall 313@somerset which houses the 20-storey office property, Corporate Office @ International Towers Sydney which is a Grade A office building with an NPI of $2.8 million or 11.4% of the REIT’s total portfolio. PHOTO: LENDLEASE GLOBAL COMMERCIAL REITIn August, Lendlease REIT announced that it is divesting a 100% interest in an office property located at 50 Lorne Street in Auckland, New Zealand, for NZ$138.5 million (S$129.3 million) to an unrelated third party which is expected to be completed by the end of 2020.DBX Group Research has a total market capitalisation of $938 million.On Oct 1, Lendlease REIT saw its units close down 0.4% to close at 73 cents. PHOTO: SREIT.com

DBS Group Research is maintaining its “buy” call and target price of 75 cents on Lendlease Global Commercial REIT, following reports that it might acquire a 70% stake in PLQ mall.

The potential acquisition is regarded as an “overall positive” for the REIT, according to DBS in a note dated Sept 23. Lendlease Global Commercial REIT comprises a portfolio of four office properties with a combined net lettable area of 1.5 million sq ft.

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The event may be early, DBS says, but it represents a great opportunity for the REIT to purchase a quality asset at a good price. It’s also an opportunity to take advantage of the current low interest rate environment to achieve a value-accretive acquisition.

Based on its assessment of the interest rate scenario, DBS believes that the accretive deal will not only be good for the REIT, but will also keep its gearing below 40%.

DBS calculates that the DPU of Lendlease REIT would surpass the hurdle rate if an NPI yield of 4.5% was used for an asset value of $800 million (for the 70% stake) and a 50/50 debt/equity mix.

If the acquisition goes through, DBS says the PLQ mall would make a good addition to Lendlease REIT, as one of the newest and best-built malls in the east of Singapore. This acquisition could also reinforce Lendlease REIT’s position as a leading pure-play retail REIT in Singapore.

Image by StockSnap from Pixabay.

Lendlease REIT also includes well-known Australian office properties, including the 20-story Corporate Office at International Towers Sydney. PHOTO: AXIAN COMPANY

Lendlease REIT first joined the S-REIT market in October 2019 with an IPO that raised $768.7 million. The REIT’s existing portfolio includes four office properties in key markets across Asia, as well as the 190-metre-high 313@somerset, which houses its 20-story office property, Corporate Office at International Towers Sydney, a grade A office building with an NPI of $2.8 million (or 11.4% of the portfolio). the total value of the REIT.

In August, Lendlease REIT announced that it had sold a 100% interest in an office property located at 50 Lorne Street in Auckland, New Zealand, to an unrelated third party for NZ$138.5 million (S$129.3 million). The transaction is expected to be completed by the end of 2020.

DBX Group Research has a total market capitalization of $938 million.

Lendlease REIT’s units fell 0.4% on Oct 1 to close at 73 cents.

Lendlease REIT is managed by Lendlease Global Commercial REIT Management. The REIT is sponsored by Lendlease Group; Sabana Investment Partners, a controlled subsidiary of Perennial Real Estate Holdings; and Tokyo-listed Toyo Kanetsu Asset Management.

DBS Group Research says it is keeping its “buy” call and $0.75 target price on Lendlease Global Commercial REIT, following reports that it might be poised to acquire a 70% stake in PLQ mall. The acquisition, if it materializes, would be an “overall positive” for the REIT, states DBS in its note on September 23.

The CEO of Lendlease Group, which is the REIT’s sponsor, has suggested that Abu Dhabi Investment Authority is looking to sell its 70% stake in PLQ mall. The mall’s remaining 30% is owned by Lendlease.

The asset, which has over 340,000 sq ft of retail space, was reportedly valued at more than $1 billion, according to the Australian Financial Review.

Just two months ago, Lendlease REIT announced the sale of another asset – the JEM office – to Keppel for $462 million. The transaction is due to be finalized by the end of 2025. Once the proceeds are fully used to reduce debt, Lendlease REIT’s gearing is expected to fall from the current 42.6% to 35%.

According to DBS, this would enable the REIT to aggressively pursue growth opportunities, and PLQ mall is one of the properties on Lendlease REIT’s right-of-first-refusal list.

“While the timing may be early, the opportunity to buy a quality mall is too good to pass up. This is especially so when interest rates are low [with SORA at around 1.45%], and an accretive transaction is possible,” says DBS.

DBS estimates that, assuming a net property income yield of 4.5%, a deal that is 50% equity and 50% debt is likely to pass the hurdle rate to acquire the 70% stake in the mall. Moreover, the REIT’s gearing is expected to remain below 40%, adds DBS.

“We believe that should the acquisition go through, the addition of a relatively new, well-established mall in the eastern part of Singapore will be an overall positive for Lendlease REIT, which will position the REIT as an emerging pure-play retail S-REIT,” DBS says.

Lendlease REIT IPOed in October 2019, raising $768.7 million. The REIT’s portfolio comprises four office properties in key markets in Asia. A 20-storey commercial building – Corporate Office @ International Towers Sydney – has an NPI of $2.8 million, and accounts for 11.4% of the REIT’s total portfolio.

The REIT first entered the S-REIT market in October 2019 with an IPO that raised $768.7 million. PHOTO: AXIAN COMPANY

In August, Lendlease REIT announced the sale of its office building at 50 Lorne Street in Auckland, New Zealand, for NZ$138.5 million (S$129.3 million) to an unrelated third party. The transaction is expected to be completed by the end of 2020.

With a market capitalisation of $938 million, Lendlease REIT’s units closed at 73 cents on Oct 1.

Lendlease REIT is managed by Lendlease Global Commercial REIT Management, and is sponsored by Lendlease