Financial Chickens

Applications for the Lendlease Global Commercial REIT IPO opens in just 2 more days.

This is probably the most exciting IPO I’ve seen this year, and I was gearing up for the release of its details ever since the news first broke in May that Lendlease was planning a listing on SGX. 

My son just fell asleep, so I’ll keep this short and cover only the main points within my investment thesis.

Details
– 387 million shares are being offered to the public at S$0.88 each
– IPO opens 25 September at 9pm
– Deadline to apply is by 12 noon on 30 September

The business

The Sponsor’s name should be a familiar one to most Singaporeans, since Lendlease is behind several much-loved shopping malls – JEM, Parkway Parade, Somerset 313 and the latest Paya Lebar Quarter.

As one of the largest developers in the world, the Lendlease Group has close to AUD$100 billion in development assets globally. Its 60-year-old history has seen it develop some of its hallmark projects including Paya Lebar Quarter (Singapore), The Exchange TRX (Kuala Lumpur), Barangaroo South (one of the most significant waterfront transformations in Sydney) and of course, its recent residential project in conjunction with Google to deliver over 15,000 new homes in the San Francisco Bay Area. 

As Lendlease Global REIT aims to provide a mix of retail and office, 2 properties have been selected for injection into this REIT at the moment:

• 313 Somerset
• Sky Complex (3 office buildings in Milan)

It is disappointing that they have only selected 2 properties to be part of the investment listing portfolio, but not difficult to see why, as both combined provide the REIT with an extremely high occupancy rate and a diversified tenant base. While I was hoping for Paya Lebar Quarter to be included as part of its Singapore exposure, I can understand why they didn’t – the mall has yet to pick up momentum and its numbers would probably pull down the rest.

Since the REIT has the right of first refusal to its Sponsor’s portfolio, I’m hoping that the Sponsor will inject more assets in the next few years, given the huge pipeline of assets that are ripe for the picking. 

The numbers

A strong list of cornerstone investors

It has been a longgggggg time since I’ve seen such a power-packed list of cornerstone investors, namely:

S$399 million of units have already been taken up by the cornerstone investors.  My only concern is that these cornerstone investors are not subject to any lock-up restrictions in respect of their units, which means whether or not they’ll sell on opening day is anyone’s guess.

Opportunities

For Somerset 313, the Singapore government and Orchard Road Business Association is working on a revamp in the Orchard Road/Somerset area, so this could bode well for the property in the near future.

For Sky Complex, investors might be interested to know that Milan is the fourth largest economy in Europe, and also one of the top destinations for the office sector. Rents in such Grade-A offices are projected to increase over the next few years, but since Sky Complex is already tenanted to Sky Italia on a long-term master lease of 24 years (till 2032), the main gain to watch here could be in terms of property valuation instead. (Sky Italia is the only tenant there, and is owned by Comcast, which is the second largest broadcasting and cable TV company in the world by revenue.) Note that the annual rent collected is 16 million euros, which provides rental income stability.

Risks

With current economic conditions, the retail scene might be squeezed if we were to go into a recession. This would likely lead to a drop in share price, given Lendlease REIT’s exposure to the retail industry as Somerset 313 comprises 71% of its asset portfolio.

But then again, talks of a recession have been looming since 2016 and it hasn’t yet happened, so there’s little use in freaking out over what’s yet to come.

Conclusion

With the hype over this IPO, it should perform well in its opening week, but how its share price fares later is anyone’s guess.

I reckon that most investors who choose to subscribe at this stage might be holding on, given the opportunities in its Sponsor’s pipeline of assets. I’m looking forward to the Sponsor injecting newer assets in the next few years for the REIT, given their global ambitions outlined in the IPO Prospectus.

The net asset value of this REIT is $0.81 but the IPO listing price is at $0.88. What this means is that retail investors will be paying a slight premium if you were to subscribe at this stage. You will have to decide for yourself if the brand name and Lendlease’s track record warrants such a premium. I certainly think it does.

So, in summary, here are my 3 reasons why I’m subscribing to the Lendlease REIT IPO:

With love,

Budget Babe