Lendlease Global Commercial REIT maintains consistent DPU growth while scoring on the ESG front

The Edge Singapore
The Edge Singapore9/14/2022 11:11 AM GMT+08  • 7 min read
Lendlease Global Commercial REIT maintains consistent DPU growth while scoring on the ESG front
Jem in Jurong, which has six levels of retail space and 12 levels of office space, was fully acquired in April 2022. Photos: Lendlease Global Commercial REIT
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Lendlease Global Commercial REIT (LREIT) has been highlighted by analysts as a hidden gem, as the REIT stands to emerge as a strong contender within the retail S-REIT space. Listed on the Singapore Exchange (SGX) mainboard in October 2019, LREIT has achieved much since and has even entered the FTSE EPRA Nareit Global Developed Index in September last year, just within two short years of its listing.

The REIT’s primary focus is on the retail and office segments. Its portfolio comprises leasehold interest in two retail malls in the Republic — Jem in Jurong Gateway and [email protected] along Orchard Road — and freehold interest in Sky Complex in Milan. Other investment includes developing multifunctional event space on a site near [email protected]

Jem, a recent addition to the REIT’s portfolio, is located at Jurong Gateway Road, close to Jurong East MRT Station on the North-South (NSL) and East-West (EWL) Lines and Jurong East Bus Interchange. Adding this property to LREIT’s portfolio expands its presence in the suburban retail market that had shown resilience, even during the pandemic when shoppers frequented malls closer to their homes for their needs.

LREIT fully acquired Jem in April when it proposed to buy the remaining 68.2% stake. The consideration reached $2.08 billion, where the REIT launched equity fundraising to fund the acquisition. The fundraising for this acquisition is the largest this year, raising a total of $1.7 billion through a private placement that was 3.3 times subscribed, perpetual securities that were 5.3 times subscribed, preferential offerings that were 1.4 times subscribed, and a sustainability-linked loan.

Over 99% of shareholders voted in favour of the acquisition in the REIT’s extraordinary general meeting (EGM). The private placement drew strong demand from long-only institutional investors and real estate specialist funds, which account for more than 80% of the total proceeds. Post-acquisition of Jem, LREIT’s market capitalisation increased 1.8 times to $1.8 billion, and deposited property grew 2.1 times to $3.7 billion over the year.

See also: Lendlease Global Commercial REIT recognised for corporate governance

Built right above the Somerset MRT Station, [email protected] is one of Singapore’s leading retail destinations

[email protected] continues to attract shoppers, given its location in the Orchard Road belt. The government is also planning to position the Somerset precinct — within the area from *Scape on Orchard Link to the junction of Somerset and Killiney Roads —as a youth hub.

In February this year, LREIT announced that about 660 sq ft of bonus gross floor area (GFA) from the Urban Redevelopment Authority (URA) Master Plan 2019 has been deployed to two prime units at the ground floor of [email protected], where one of them is currently tenanted by athleisure brand Puma.

See also: ParkwayLife REIT's manager announces scope of renewal capex works

This 660 sq ft is just the beginning of LREIT’s plans to unlock a total 10,200 sq ft of bonus GFA, which will support it in realising the full potential of [email protected] and creating new value for unitholders. Including the multifunctional event space just next to [email protected], LREIT’s presence within the Somerset precinct comes up to approximately 330,000 sq ft.

LREIT’s other portfolio is Sky Complex, which comprises three Grade A office buildings in Milan, Italy. “Sky Complex is fully occupied and operates on a triple-net lease structure, minimising operational costs and risks for LREIT. With a long lease term until 2032 and annual rental escalation based on 75% of ISTAT consumer price index variation, Sky Complex is projected to provide a stable income stream to the portfolio,” says LREIT CEO Kelvin Chow.

Riding the recovery wave

LREIT is well-placed to ride on the economic recovery for growth, as its local malls are located in prime and high footfall areas. Chow says he has noticed an increase in footfall at shopping malls and is confident Singapore will see more tourists. He also expects [email protected] to benefit from the reopening trajectory and Jem to remain resilient.

Its performance has already improved this year, as seen in its latest FY2022 ended June results. LREIT’s distribution per unit (DPU) increased by 3.7% y-o-y to 4.85 cents, and gross revenue gained 29.3% y-o-y to $101.7 million. These figures bring its net property income (NPI) to $75.5 million, 32.7% higher than the previous year.

Chow says: “Our results and achievements in FY2022 have been very encouraging and are a testament to our commitment to creating value for our unitholders. Not only did we succeed in generating sustainable value for unitholders, but we also enlarged our financial strength and resilience.”

As of end-June, tenant sales had surpassed the pre-pandemic average for [email protected] and Jem. “We expect LREIT to maintain its income resiliency in the coming quarters boosted by the 100% ownership in Jem, which expands LREIT’s exposure in the resilient suburban retail segment to about 47%,” adds Chow.

For more stories about where money flows, click here for Capital Section

For its retail properties in the citystate, the REIT is committed to ensuring that the malls stay relevant. It actively assesses tenants’ business models to ensure that its offerings are sustainable and can generate income and footfall. To foster cross-collaborative partnerships, LREIT has introduced new in-app offerings through Lendlease Plus, giving lifestyle rewards to shoppers. In FY2022, LREIT saw a 20% increase in Lendlease Plus members.

Freehold office property Sky Complex, which comprises three office buildings, is located in Milan, Italy

LREIT’s Milan office property is doing well, receiving timely rental payments from its tenant. The property boasts an annual rental escalation based on 75% of ISTAT consumer price index variation.

“On portfolio performance, LREIT is well-positioned and anchored through its high occupancy of 99.8% with a long WALE of 8.7 years by NLA and 5.5 years by GRI,” says Chow. The REIT enters its FY2023 period and has laid out several growth plans. It may also look to expand its portfolio. Still, Chow emphasised that the REIT will have to stringently assess all potential acquisitions to ensure that it brings value to its unitholders. Some of its requirements to acquire a property include having a minimum occupancy of at least 80%, achieving an average rental rate comparable to the market rental rate for similar assets, not needing any material asset enhancement initiatives within two years of the acquisition, as well as the market condition at the time of the proposed offer.

Ahead in the ESG race

Besides financial growth and the addition of quality properties, LREIT also focuses on environmental, social, and corporate governance (ESG). Lendlease takes its responsibility to the planet seriously, notes Chow, adding that it has embarked on Mission Zero, a roadmap to reduce greenhouse gas (GHG) emissions and work with its partners, tenants and stakeholders.

LREIT has identified climate-related impacts as material risks to its business. It is committed to working alongside industry and government partners to develop plans to respond to physical, transitional, and financial risks associated with climate change. It has also set environmental goals, with ambitious science-based emissions reduction targets, including achieving zero carbon by 2040.

On Aug 29, LREIT became the first S-REIT to attain a net-zero carbon target — ahead of its original target of 2030 — through various carbon reduction strategies like energy efficiency initiatives and reducing energy consumption within its Singapore assets. As the first S-REIT to attain Net-Zero Carbon status, LREIT is also actively exploring new ways to reduce its energy consumption, adds Chow.

In FY2022, LREIT also achieved all of its ESG targets by maintaining its top leadership position in GRESB rankings; creating shared value and social license to operate; conducting asset-level climate-related risk assessments, and adopting recommendations by the Task Force on Climate-Related Financial Disclosures (TCFD); reducing the usage of water, energy and greenhouse gas emission; as well as increasing the recycling rate.

Its green efforts have not gone unnoticed. LREIT won first place in the Asia Retail (Overall) and Asia Retail (Listed) categories in the 2021 GRESB real estate assessment with the highest-tier rating of five stars for its ESG performance for two consecutive years since its listing in 2019.

Although becoming the first net-zero carbon S-REIT and winning several awards is a big feat, LREIT’s efforts do not stop there. LREIT is expected to meet its sustainability performance targets under its $960 million sustainability-linked loans and $216 million of sustainability-linked derivatives. It is also likely to generate net interest savings for LREIT’s unitholders.

“The goal is to further LREIT’s green ambitions, which it shares with its sponsor. LREIT has committed to ensuring that its entire portfolio achieves minimal to zero GHG emissions and uses water and other finite resources judiciously,” adds Chow.

Photos: Lendlease Global Commercial REIT

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