However “the large quantum of the acquisition necessitates equity fundraising, which carries a higher cost of capital, making this leg of the Jem acquisition less accretive compared to previous rounds,” she says.
“Based on our forecast, the acquisition of the remaining 86.15% stake in Jem is marginally accretive at 0.1%, in line with the pro-forma distribution per unit (DPU) accretion of 0.1-3.0%,” she adds.
To this end, Ong has increased her DPU estimate for the FY2022 and FY2023 by 1.7% and 0.3% respectively, while her DPU estimates for FY2024-FY2026 were lowered by 0.4%-1.1% due to the REIT’s enlarged share base.
“The current share price implies FY2022 DPU yields of 6.0%. Pipeline assets for LREIT include Paya Lebar Quarters and Parkway Parade,” she says.
Jem is one of the bigger malls in Jurong East, pulling from a catchment of some 1.1 million residents as at 2020. The mall’s retail occupancy was 100% as at Dec 31, 2021, and remained above 98% throughout the Covid-19 pandemic, says Ong.
“Despite the 100% occupancy, the manager managed to increase revenue for the property by creating 1,500 sq ft in additional net lettable assets (NLA) at level 1 and basement 1,” she adds.
The office component is fully leased to the Ministry of National Development (MND) on a 30-year lease ending in 2045. The lease is subject to a rent review every five years and contributes 20% and 35% of JEM’s gross rental income (GRI) and NLA for the year ended Dec 31.
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As at 12.03pm, units in LREIT are trading 0.5 cent lower or 0.61% down at 81 cents, or an FY2022 P/NAV of 1.05x.
Photo: The Edge Singapore
