INTERVIEW: Lendlease Global Commercial REIT: Singapore Is Primary Focus For Near Term Acquisitions

Having listed with 313@somerset and Sky Complex, Milan, most of LendLease Global Commercial REIT’s (LREIT) subsequent investments have been in Singapore. Are you pursuing investments in markets outside of Singapore currently? If so, which markets and how do you see the commercial property market prospects in those markets?

In addition to Singapore, we continue to look out for relevant growth opportunities from our sponsor’s pipeline as well as from third-party sources. There are opportunities to tap our sponsor’s global pipeline to acquire high-quality assets with stable cash flow. The acquisition of the additional stake in Jem through our sponsor to boost LREIT’s portfolio income diversification clearly demonstrates its support for the REIT.

When evaluating acquisition opportunities, our key objective is always to deliver regular and stable distributions for unitholders. To achieve this, we take into consideration the strength of the global economy, the accretiveness of the acquisition, cost of credit and LREIT’s unit price at the point of acquisition.

LREIT’s gearing ratio of 34.3% as at September 30, 2021. This is well below the regulatory limit of 50%, which provides us with ample debt headroom to grow its portfolio. The S$1 billion multicurrency debt issuance programme will also provide more funding options.

In terms of geography, Singapore will be the primary city we will focus on in the near term. Jem, of which we have recently acquired an additional stake, increased our exposure in the resilient suburban retail segment and boosts our portfolio income diversification. The acquisition was 3.6% DPU accretive for our unitholders.

Suburban retail in Singapore remains a resilient segment. Jem has established itself as a dominant retail mall in the West Region and is one of Jurong Gateway’s best performing retail and office mixed-use assets. Its retail component is well-tenanted with a high committed occupancy of approximately 99%. Essential services trade mix such as food and beverage, services, supermarket and hypermarket, and beauty and health account for 55% of its net lettable area.

Its office component is 100% leased to the Ministry of National Development for a long lease term of 30 years, with a remaining lease term of approximately 24 years as of September 30, 2021. With the expected office decentralisation trend resulting from the COVID-19 pandemic and the adoption of remote working, Jem will be particularly well-positioned as it provides conveniently located good quality office spaces near residential communities.

In addition, Jem has strong sustainability credentials. It was awarded Green Mark Platinum and Universal Design Mark Gold Plus by the Building and Construction Authority in Singapore.

You have exposure to both Orchard Road prime retail and the Jurong suburban retail cum decentralised office district and have been increasing exposure to both sub-markets. What is the attractiveness of both submarkets during COVID and as we emerge from the pandemic?

Our assets, 313@somerset and Jem, are dominant malls located in the Somerset precinct and Jurong Gateway, respectively. 313@somerset  is a lifestyle destination mall relying on the local customer base as it effectively taps discretionary spending by millennials and young working adults. Jem is one of the best performing mixed-use retail and commercial assets in the west of Singapore. It has a strong natural catchment from the estimated population of 1.1 million residents in Singapore’s west.

Suburban malls have proven to be resilient across market cycles. They have demonstrated relevance and resilience amid extended restrictions and Work-From-Home (WFH) trends with exposure to essential trades such as supermarkets and food and beverage outlets.

Jem is a dominant suburban mall located in the heart of Jurong Gateway and  the Jurong East Regional Centre, which serves the entire West region. The region is the primary destination retail and business centre for the western and northwest parts of Singapore. Essential services trade mix such as food and beverage, services, supermarket and hypermarket, and beauty and health account for c.55% of its net lettable area.

The ability to achieve rapid replacement of former Robinsons department store space by IKEA’s first small concept store in Southeast Asia is a strong testament to Jem’s attractiveness as a retail destination.

COVID-19 has accelerated the trend of online shopping. Retailers are compelled to recreate their in-store customer experience and rapidly adapt their marketing strategies to build brand affinity. We see omnichannel retailing as a viable way to navigate through the COVID-19 pandemic.

313@somerset features brands such as omnichannel retailer Love, Bonito that appeal to the younger generation. Riding on the success in bridging the online to offline trend, the mall has also attracted new-to-market online brands like Pomelo, which opened its first store in Singapore in 2019.

The strategic location of 313@somerset with direct access to the Somerset MRT station plays a key role in bridging the gap between the physical and the digital realms, allowing its tenants to transit toward a ‘phygital’ model.

The Singapore government envisaged the Somerset precinct to be a youth hub. There is a rejuvenation exercise to include more youth-oriented dining and entertainment offerings to make it the focal area of Orchard Road. This move augurs well for us.

With the progressive easing of border restrictions in 2022 and higher vaccination rates, the retail segment is poised to benefit from improvements in economic activity and consumer sentiment in the near term.

Are there any specific attributes of Jurong retail being that it is also a decentralised office district?

Jem is one of the largest suburban malls in Singapore, with retail space across six levels. It also comprises 12 levels of office space fully leased to the Ministry of National Development of Singapore (MND). Anchor tenants within the retail space include IKEA, FairPrice Xtra (a hypermarket), Cathay Cineplexes and Don Don Donki. Other major retail tenants include H&M, Koufu, Uniqlo and Courts.

The office component has a long WALE (Weighted Average Lease Expiry) of approximately 24 years, providing strong, stable cash flow for our unitholders.

Jem is expected to benefit further from the government’s ongoing decentralisation drive that includes the future Jurong Region MRT Line and the new Jurong East Integrated Transport Hub in 2029, the Jurong Innovation District in 2022 and the upcoming Tengah Forest Town.

On the ESG front, Jem is the first mixed-use asset in Singapore to be awarded the Green Mark Platinum version 4 and received the Building and Construction Authority’s Universal Design Mark Gold Plus Design Award.

In the 2021 GRESB rankings under the Asia Retail (Non-Listed) category, it was ranked second (obtained while Jem was held under Lendlease-managed funds).

You are planning for the Grange Road Car Park to be more of an “experiential innovative lifestyle destination that features creative use of communal spaces and themed events to promote social networking and wellness”. Is this a reaction to retail’s shift to digital, and would such communal spaces/ themed events be a mainstay of future retail?

Being resilient and adaptable to change are two important qualities in which we strongly believe. Lendlease believes in creating better places for everyone, and that means putting people at the centre of our decision making.

For LREIT, we tap our sponsor’s expertise in placemaking and developing activated spaces. Our sponsor has been operating in Singapore for more than 40 years and is

already one of the forerunners in new experiences and concepts, i.e. first Don Don Donki with a bar at Jem; IKEA’s first small concept store in Southeast Asia at Jem.

We believe in differentiating our retail malls and development projects as lifestyle destinations. With the inclusion of the multifunctional event space, 313@somerset’s presence in the Somerset area will expand to approximately 330,000 square feet, anchoring the precinct.

The strong government support in rejuvenating Orchard Road is an important consideration for us to invest in the site and create synergy with Discovery Walk, which is linked to 313@somerset. We will work with stakeholders and community groups to use the space for a variety of curated events. Locals and tourists will be entertained with experiential and memorable retail, lifestyle and entertainment events that run throughout the year.

The event space aims to offer a first-of-its-kind lifestyle experience along Orchard Road, with multiple dedicated event spaces, an independent cinema, hawker stalls serving local delights and a food and beverage attraction. This will provide a rich array of events and experiences for locals and tourists, especially the millennials.

We are collaborating with Live Nation, the world’s leading live entertainment company, to create an exciting calendar of concerts and events, ensuring that the site is active all year round. Live Nation has strong expertise in event management and a portfolio of world-class talents and content to attract fans, followers and footfall.

How do you see the WFH and return to office trend playing out in the near term and as the pandemic subsides?

From a corporate occupier perspective, we understand how businesses may want to utilise workspace differently to cater for more flexible work arrangements. In preparation to live with COVID-19, landlords have to be nimble to support the needs of the occupiers and, at the same time, ensure stable cash flow for investors.

The changes we have observed amid the COVID-19 pandemic will become part of the new normal, but we are confident of our ability to create better places and build vibrant and resilient communities hand-in-hand with our stakeholders while placing people at the centre of our decision-making process.

The three grade-A office buildings of Sky Complex are fully occupied and characterised by large and efficient floor plates to meet the regional needs of global organisations seeking to establish progressive workplaces. Based on our observations on the ground, we are seeing more employees returning to Sky Complex with safe distancing measures in place. We have also received a good

number of enquiries on application of season parking in the buildings, which is a positive signal that more people are returning to the office.

A note worth mentioning: Sky Complex is fully leased to Sky Italia for a long lease term till 2032 (with a break clause option in 2026). Comcast Corporation owns sky Italia – one of the largest broadcasting and cable television companies in the world by revenue and rated A3 by Moody’s Investors Service. It is a triple net lease structure where Sky Italia will pay for all the operating expenses in the buildings. This minimises operational costs and risks for LREIT. In addition, there is an annual rental step-up based on 75% of ISTAT consumer price index variation.

The office component in Jem is fully leased to the Ministry of National Development with a long weighted average lease expiry of 24 years, providing strong, stable cash flow for our unitholders.

Both office properties at Jem and Sky Complex are decentralised and well served by public transportation.

What has the impact of COVID been for retail, and do you see a recovery after COVID or is the digital shift more permanent? How is LREIT adapting to the digital shift?

We cannot ignore how COVID-19 has accelerated the trend of online shopping. Retailers are compelled to recreate their in-store customer experience and rapidly adapt their marketing strategies to build brand affinity. We have pivoted quickly to capitalise on new customer lifestyle demands and enhance our experiential offerings to increase customer engagement.

Since the onset of the COVID-19 pandemic, we have launched a suite of in-app offerings such as flash sales, festive games and contactless redemption of promotional mechanics. These in-app offerings, in addition to the communications on the various social channels, app push notifications and regular themed eDMs (electronic direct mails) to our database, help extend tenant brand communications.

We are also expanding cross-collaborative partnerships with hospitality, F&B ordering and e-payment brands to offer lifestyle rewards and experiences to our shoppers in a bid to encourage recurrent spend and footfall.

We have ongoing tie-ups with e-commerce platforms that offer campaigns as an avenue for exposure and sales for our tenants. These in-app offerings and campaigns are well received by shoppers as well as our tenants. In 2020, the number of Lendlease Plus memberships increased more than 45% year-on-year.