Real Estate Investment Trusts (REITs) are hugely popular investments in Singapore. The reasons for this lie in two key characteristics – 1) its focus on property investments, which Singaporeans just cannot get enough of, and 2) its ability to pay a good annual distribution yield of typically between 5% and 8%.
It should come as no surprise that when a new $1.5 billion REIT initial public offering (IPO) is announced, there will be plenty of interest.
To guide you in your assessment of whether to invest in Lendlease Global Commercial REIT’s IPO, here are 10 things you should know.
# 1 What Is Lendlease Global Commercial REIT?
Lendlease Global Commercial REIT will own properties primarily in the retail and/or office space. The initial REIT portfolio comprises two properties – 313@Somerset in Singapore and Sky Complex in Milan, Italy.
Upon listing, Lendlease Global Commercial REIT will be Lendlease Group’s first REIT. This may be a good or bad thing, as we aren’t privy to how the Group value-adds to its REIT stable.
# 2 Who Is Lendlease?
Lendlease Group is an international property and infrastructure group with a project pipeline worth nearly A$100 billion globally. Lendlease Corporation, the REIT’s sponsor, is part of the Lendlease Group, and will perform a role similar to what Mapletree, CapitaLand or Ascendas does for several Singapore-listed REITs.
Lendlease Group is also listed on the Australian Securities Exchange (ASX), with a market capitalisation of approximately A$9.5 billion. The group has a pipeline of about A$29 billion in commercial developments as of FY2019, which forms the acquisition pipeline for Lendlease Global Commercial REIT, which Lendlease Global Commercial REIT has secured a right of first refusal on.
# 3 Why Does It Only Have 2 Properties To Start Off With?
While Lendlease has a large portfolio of commercial properties that could have been injected into the REIT, Lendlease Global Commercial REIT will start off with only two properties listed above – 313@Somerset in Singapore and Sky Complex in Milan, Italy.
Firstly, it does not mean that just because it has two properties, Lendlease Global Commercial REIT is not a good REIT. In fact, its market capitalisation of over $1.5 billion makes it larger than almost 50% of the REITs and business Trust listed on the SGX.
While we aren’t exactly sure why it only started off with two properties, there could be several reasons:
i. It may not have wanted to confuse investors with a large portfolio of properties from around the world. This was the case when Cromwell European Trust was initially seeking an IPO, and had to carve out several properties from its initial portfolio in order to get investor buy-in.
ii. Listing with just two high-quality property has also not held back REITs, with Mapletree North Asia Commercial Trust starting the same way, with just two properties in Hong Kong and China in 2013.
iii. Lendlease could also be holding back some of its properties to inject and spur growth in its REIT for the near-term. Another reason could be that some of its newer properties such as Paya Lebar Quarters (PLQ) may not have stable occupancy rate, lease profile or track record to drum up at the IPO stage, and may be injected once they have stabilised.
Of course, with only two properties in its initial portfolio, it is exposed to concentration risk.
# 4 What Other Properties Are In The Sponsor’s Pipeline?
While its initial portfolio of properties look good, it can be unbefitting of a REIT labelled Lendlease Global Commercial REIT. We’ve explained just how large the scale of Lendlease’s business is, and secondly, the word “global” should be more far-reaching than just having properties in Singapore and Milan, Italy.
Looking at Lendlease’s global commercial property portfolio, here are some potential properties that could be injected into the REIT.
i. Barangaroo South, in Sydney, Australia.
ii. Melbourne Quarter in Australia.
iii. Paya Lebar Quarter, in Singapore.
iv. The Exchange TRX, in Kuala Lumpur, Malaysia.
v. Milano Santa Giulia, in Milan, Italy.
Apart from these properties, Lendlease also has other properties in development, as well as has connections as a property developer and manager for diverse properties. This puts Lendlease Global REIT in a good position to source for high quality properties to add to its stable in the future.
# 5 Who Are The Large Investors In Lendlease Global REIT IPO
From its prospectus, we can see that the IPO is well-supported by a strong line-up of cornerstone investors. This is a piece of welcomed information, given the support other recently listed REITs received during IPO this year.
i. AEW Asia Pte Ltd
ii. Asdew Acquisitions Pte Ltd
iii. BlackRock, Inc.
iv. DBS Bank Ltd. (on behalf of certain wealth management clients)
v. DBS Vickers Securities (Singapore) Pte. Ltd. (on behalf of certain corporate clients)
vi. Fullerton Fund management Company Ltd.
vii. Lion Global Investors Limited
viii. Moon Capital
ix. Nikko Asset Management Asia Limited
x. Principal Asset Management (S) Pte Ltd
xi. Soon Lee Land Pte. Ltd.
xii. The Segantii Asia-Pacific Equity Multi-Strategy Fund
xiii. TMB Asset Management Co., Ltd.
In total, its cornerstone investors will hold 38.9% of its units in issue.
Lendlease Group will also continue to be a large shareholder in the REIT, holding between 24.3% and 27.2% of its units, post IPO.
# 6 Are The Properties Rented Out On Good Terms?
Lendlease Global Commercial REIT current portfolio of properties in Singapore and Milan, Italy, are high-quality properties. Moreover, the current stable of properties have a committed occupancy rate of 99.9%.
Sky Complex, is a freehold Grade A property comprising three buildings in Milan, Italy. It is 100% leased to Sky Italia, a television platform owned by Comcast Corporation, one of the largest broadcasting and cable television company in the world. It is leased out on a long lease of 12 years + 12 years, starting in 2008.
313@Somerset is a 99-year leasehold prime retail property in the heart of Orchard Road that none of us should be unfamiliar with. It is leased out to a diverse tenant base of 150 tenants across 14 trade sectors, and has a WALE of nearly 1.8 years. 58.9% of 313@Somerset’s leases have an in-built rental escalation of 3.0% to provide stable income growth.
Both properties are also leased out at favourable weighted average lease expiry (WALE) terms at 10.4 years by net lettable area (or 4.9 years by rental income).
# 7 How Much Will Each Unit Of Lendlease Global Commercial REIT Cost?
Lendlease Global Commercial REIT will be offering 387,474,987 units at an IPO price of $0.88 per unit. This is approximately an 8.2% premium over its Net Asset Value of $0.8134.
Compared to a similar REIT listed in Singapore, Mapletree Commercial Trust is currently trading at a Price/Book value of 1.43x.
# 8 How Much Dividends Will Lendlease Global Commercial REIT pay? What Is Its Yield?
At its IPO price, Lendlease Global Commercial REIT will have a projected distribution yield of 5.8% in FY2020 and 6.0% in FY2021.
This means for every $1,000 you invest in its IPO, you will be projected to receive $58 in FY2020 and $60 in 2021. Of course, if you invest after it is listed on the Singapore Exchange (SGX), prices could go up or down, and you will receive a lower or higher distribution rate respectively.
Lendlease Global REIT will be distributing 100% of its adjusted net cashflow from operations till the end of FY2021, and thereafter, it will distribute 90% of its adjusted net cashflow from operations.
# 9 Will Lendlease Global Commercial REIT Incur Withholding Taxes From Its Milan Property?
One other reason why the Sky Complex property was injected in the initial property portfolio may be due to an exemption of withholding tax and Singapore income tax on its distributions. This has been confirmed by the Italian tax authorities as well.
Its Singapore property will also enjoy tax transparency treatment on its rental and other ancillary income.
# 10 What Are The Key IPO Details?
We can apply for the IPO via the following methods:
- ATMs and iBanking of DBS (including POSB), OCBC and UOB
- Mobile banking interface of DBS
- Printed WHITE Public Offer Units Application Form (in its prospectus)
Most of us hoping to get hold of the units will probably just subscribe for it via ATMs or iBanking. Those interested in subscribing for its IPO should note these dates:
|Opening date and time for the Public Offer||25 September 2019 @ 9.00 p.m.|
|Closing date and time for the Public Offer||30 September 2019 @ 12.00 noon|
|Commence trading on a “Ready” basis||2 October 2019 @ 2.00 p.m.|
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