Following the proposed acquisition of the remaining interests in JEM, Lendlease Global Commercial REIT (“LREIT”) plans to issue a NC3 perpetual bond at an initial price guidance (“IPG”) of 5.50%. The new SGD issuance is a fixed rate, subordinated bond that is first callable in April 2025 at par.
Lendlease Global Commercial REIT is a Singapore real estate investment trust with a principal investing strategy in a diversified portfolio of stabilised income-producing real estate assets. Their assets are located in Asia and Europe, and are mainly used for retail and office purposes. Its current portfolio comprises of a 99-year leasehold interest in 313@Somerset in Singapore, as well as a freehold interest in Sky Complex located in Milan. Following the acquisition of JEM, LREIT will hold a 100% stake in the integrated office and retail property located at the heart of Jurong Gateway.
LREIT is managed by Lendlease Global Commercial Trust Management Pte. Ltd., which is an indirect, wholly-owned subsidiary of Lendlease Corporation Limited. The Sponsor, Lendlease Corporation Limited, is part of Lendlease Group, which is a leading international property and infrastructure group with operations across Australia, Europe, Asia, and the Americas and it is listed on the Australian Securities Exchange.
Proceeds from this perpetual bond offering will be used for general corporate purposes, working capital and capital expenditure requirements, refinancing of its existing borrowings, as well as to finance potential investment and acquisition opportunities (including the remaining interests in JEM). Both the issuer and the new offering are expected to be unrated. The bond is first callable in April 2025 and every 6 months thereafter at par. The first coupon reset date falls in April 2025 and every 3 years thereafter based on the prevailing 3-year SORA OIS plus initial spread. Distributions are deferrable and non-cumulative, and the perpetual bond also contains a dividend stopper clause.
For the first half of FY2022 (“1H FY2022”), net property income for LREIT Group declined slightly by 2.5% year-on-year (“YoY”) due to a fall in its gross revenue. Nonetheless, distributable income increased by 2.6% YoY from SGD 27.55m in 1H FY2021 to SGD 28.60m in 1H FY2022. The Group has a strong portfolio occupancy of 99.9% as at 31 December 2021, with a significant reduction of expiring leases to only a minimal of 2% by net lettable area (“NLA”) and 7% by gross rental income (“GRI”) for the rest of FY2022. Their weighted-average lease expiry profile remains healthy at 8.4 years by NLA and 4.4 years by GRI.
In terms of its credit profile, LREIT Group has a healthy leverage position with an aggregate gearing of 33.5% as at 31 December 2021, which is a slight reduction compared to 34.3% as at 30 September 2021. Interest servicing ability still remains strong with an interest coverage ratio of 9.7 times in accordance with the requirements under its loan facilities. The Group has more than sufficient amount of bank facilities to refinance SGD 99.3m of debt due FY2023, as it currently has SGD 136.0m of undrawn multicurrency debt facilities. As such, the Group remains well-positioned to pay off their debt obligations in the future.
As for relative valuation, we think that the new issue is attractive, given that it is currently priced at 5.50% area (IPG) for a NC3 perpetual bond. Comparing it to the LREIT 4.200% Perpetual Corp (SGD) that is currently yielding at approximately 4.77% with around 4.2 years left to its first call date in June 2026, we think that the new issue is more attractive with higher yield to call and a shorter remaining time to call. However, investors should note that the final price guidance for the new bond would likely be lower than the initial price guidance.
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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