Why Invest In LendLease REIT Although I’m Already Using Syfe REIT+? (2023)

Lendlease Global Commercial REIT (SGX:JYEU) is a Singapore-listed real estate investment trust.

It was listed on the Singapore Exchange Securities Trading Limited (SGX-ST) on 2 October 2019.

The parent sponsor of Lendlease REIT is Lendlease Corporation Limited with a portfolio of over $100 billion of assets under management. Yep, they’re the big boys.

Lendlease REIT is managed by Lendlease Investment Management (LIM), a wholly-owned subsidiary of Lendlease Corporation Limited.

I won’t bore you with any more of the boring details of LREIT business updates – you can see them at Lendlease REIT official website.

After all, the joy of reading such reports is part and parcel of investing in REITs, isn’t it? Besides, other bloggers and vloggers have already done a great job of dissecting them.

Just gonna be talking to myself a little bit about Lendlease REIT today because investing can still be fun, especially when I’m using my play money.

The Lendlease REIT IPO (2019)

Don’t remember much about the Lendlease REIT IPO except that it didn’t gather much interest from me then, because it only had 2 properties in its tiny portfolio and one is located far away from Singapore in Milan, Italy.

• 313@somerset, Singapore (prime retail)
• Sky Complex, Milan, Italy (office)

I stayed away because of the chances that Lendlease REIT is going to need to raise funds to acquire more assets down the line.

Which it did – see below.

Lendlease REIT acquires Jem (2021-2022)

With the acquisition of Jem, this was the game-changer that made me put Lendlease REIT back into my watchlist.

Literally a gem and the crown jewel of the Lendlease REIT portfolio, it felt like this would have been awesome to be included in the portfolio during IPO.

Post-acquisition, the enlarged portfolio now looks a lot more stable and attractive to me with a strong base in Singapore (87%) that is largely driven by sub-urban retail (46%) that is significantly non-discretionary in nature.

Previously, it was way too heavily dependent on the Milan side for my liking.

Office Component Is Stable Now

In a way, Lendlease REIT is somewhat easier to understand even though it has both retail and office components.

The office components come in two parts –

• Jem (12 office floors)
  • All are fully leased to the Ministry of National Development of Singapore
  • Until 2044
  • 30-year lease (rental review every five years)
• Sky Complex, Milan (3 buildings)
  • Fully leased to a single tenant Sky Italia, a subsidiary of Comcast Corporation – one of the world’s largest broadcasting and cable television companies by revenue, with an annual rental step-up in line with 75% of The Italian National Institute of Statistics consumer price index variation.
  • Until 2032
  • Triple-net lease (rental review every year)
  • Income from Sky Complex is hedged with rolling foreign exchange forwards

Basically two office properties, two tenants.

This meant that Lendlease REIT’s office component is fully leased and will provide a stable income for at least the mid-term.

Retail Component Is Doing Well Too

With only 2 properties and high occupancy, the retail is pretty boring, but boring is great in my opinion with high occupancy.

• Jem (99.9% occupancy, sub-urban retail)
• 313@somerset (98.8% occupancy, prime retail)

Covid is pretty much goodbye, and retail traffic is making new highs.

IMO, one of the best ways to evaluate a retail REIT is to visit them – which I always do for CICT and FCT already.

I stepped into the stores and get a sense of consumer traffic during weekdays and weekends.

I eyeballed the F&B outlets and take in the number of shops under renovation etc.

I checked out the maintenance of the property, and its surroundings plus see if the toilets are in good condition LOL.

There are simply too many things that we can’t tell from numbers on the screen.

Having visited both the malls multiple times in the past, I can say that I like them both.

Hiding Expensive Perpetual Securities Debt Under Equities?

The juiciest bits will always come from unitholders, and the interesting bits from the questions from unitholders and SIAS for AGM (October 2022) were regarding the use of perpetual securities as a source of financing the acquisition of Jem.

Lendlease REIT issued $200 million (4.2%, June 2021) and another $200 million (5.25%, April 2022) even before the high interest rate environment we’re seeing today. Basically, unitholders were pissed unhappy that it was even more expensive than the adjusted net property income of Jem (4.4%). How can like that?

FYI, perpetual securities are treated as equity instead of debt, and the gearing ratios that REITs report in their financial results exclude perpetual securities.

If we were to include those, the actual gearing ratio for Lendlease REIT is closer to an eye-watering 50%.

I suppose a rather diplomatic answer served to cover the bases by Lendlease REIT.

• When LREIT acquired an additional stake of up to 31.8% in Jem in June 2021, it employed the use of perpetual securities as it had offered an attractive funding option without an immediate need for equity fund raising.
• In March and April 2022, we launched an equity fund raising exercise to finance the acquisition of the remaining interest in Jem. Against the backdrop of rising interest rates and the Russia/Ukraine conflict, a combination of private placement, preferential offering and perpetual securities were adopted taking into consideration the amount of gross proceeds required, timing and the speed of execution within the narrow window of opportunity.
• We would like to highlight that the evaluation of which method to use for raising funds, be it through a private placement, preferential offering or perpetual securities, is dependent on various factors including macroeconomic conditions.

Thought this point was worth mentioning to highlight the actual debt conditions of the REIT.

Possible Future Acquisitions

According to LREIT’s manager, the REIT plans to focus on Singapore with Paya Lebar Quarter and Parkway Parade in the pipeline.

• PLQ is a mixed-use development located in the heart of Paya Lebar, Singapore.
  • The development comprises a 20-storey office tower, a 15-storey hotel, and a six-storey retail podium. PLQ is anchored by a number of major tenants, including Singtel, DBS Bank, and OCBC Bank.
• Parkway Parade is a large suburban shopping mall located in the heart of Marine Parade, Singapore.
  • The mall is anchored by a number of major tenants, including NTUC FairPrice, Cold Storage, and Uniqlo.
  • Lendlease REIT has announced on 5th June 2023 on its acquisition of 10% Of Parkway Parade Partnership

Not bad to have options lined up, but Lendlease REIT would probably be finding it hard to stomach Jem at the moment, with high interest rates weighing on its shoulders.

Volatile Price Action

All things considered, I would think that the LendLease REIT of today is way more attractive than the one that IPO-ed in 2019.

Versus the IPO price of $0.88, today’s price of $0.67 sees a decline of 24% (ouch) with a yield of 7.3%.

All I would say is that if Lendlease REIT had IPO-ed at this price with its current portfolio, I probably would have invested in it because I like what I’m seeing.

Where Is Interest Rate Headed?

Taking the impact of interest rate into consideration, DPU is expected to move by approximately -0.6% per annum for every 10-basis point rise in interest rates as of October 2022.

Just when the world thought that the pivot has happened, strong economy and jobs reports are once again fueling the likelihood of another rate hike, or at least that’s what the market is thinking.

The dark clouds of possible yet another rate hike are adding to volatility and in the month of May, both REITs and bond funds prices (I’m looking at you Syfe Income+) are moving once again in response – downwards, that is.

The pain (headache) will likely persist in 2023, so keep collecting dividends (Panadol) I guess.

Considering that I already have a sizeable investment in the REITs sector via Syfe REIT+ (which reminds me, I should probably do an updated review for 2023), whether or not to invest in Lendlease REIT boils down to where I’m deciding to allocate my fun money.

As it stands right now, Lendlease REIT is already 3.4% of my Syfe REIT+ portfolio since it is included in the iEdge S-REIT Leaders index.

Versus cash management solutions and benchmark interest rates at the moment:

• Lendlease REIT Yield = 7.3%
• Fed Rate = 5%
• Money Market Fund e.g. MoneyOwl WiseSaver = 4%
• Singapore Savings Bonds = 2.8%

Lendlease REIT is definitely near the top of my list right now.

If I’m using Syfe Trade, I can do it easily with low fees like what I’ve already done with Frasers Centrepoint Trust.

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Kevin

Kevin started Turtle Investor when his net worth languished at negative $25,755. His desire to turn things around led him to build passive income from investments and side hustles that pay for all his daily expenses and overseas vacations. You can learn more about Kevin here.