Lendlease Global Commercial REIT - CGS-CIMB Research 2020-10-01: First Step To Growing Its Portfolio

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LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)

Lendlease Global Commercial REIT - First Step To Growing Its Portfolio

• Lendlease Global Commercial REIT took the first step to grow its portfolio by acquiring an effective stake of 3.75% in Jem.
• The acquisition provides Lendlease Global Commercial REIT with preemptive rights and exposure to Jem’s stable office income.
• Reiterate ADD on Lendlease Global Commercial REIT.
• Lendlease REIT's share price is trading at 0.8x FY20 P/BV.

Acquired stake in Jem via 5% interest in LARIF3

• Lendlease Global Commercial REIT (SGX:JYEU) announced today that it has acquired a 5% stake in Lendlease Asian Retail Investment Fund 3 Ltd (LARIF3) — which holds a 75% indirect interest in Jem, an integrated office and retail development at Jurong Gateway — from Lendlease International Pty Ltd, at a purchase consideration of c.S$45m. Lendlease Pty Ltd will now hold a c.15.1% interest in the fund versus 20.1% previously.

Acquisition provides preemptive rights to Lendlease Global Commercial REIT

• The acquisition stake of 5% translates into an effective 3.75% stake in Jem and will be funded via internal funds and debt. Proforma gearing is expected to increase from 35.1% to 36.9%, and proforma DPU would rise by 0.65% to 3.07 Scts.
• The initial stake of 5% allows Lendlease Global Commercial REIT to gain pre-emptive rights, providing it the opportunity to increase its strategic stake in the fund over time if other investors were to divest their interests.
• While it is a small initial stake, this is nonetheless the first step to grow Lendlease Global Commercial REIT.

Jem, a suburban mall with stable office income

• Jem, which has an NLA of 892,000 sf, is one of the largest suburban malls in Singapore. The mall enjoys direct connectivity to both the Jurong East MRT station and bus interchange. It has retail space (65% of NLA) spread across six levels, as well as office space (35% of NLA) across 12 levels, which are fully leased to Singapore’s Ministry of National Development (MND) for 30 years.
• Anchor tenants of the mall include FairPrice Xtra, Cathay Cineplex and Don Don Donki. Other major retail tenants include Koufu (SGX:VL6), Uniqlo, H&M and Courts, with Ikea slated to open in 2021.
• Based on our observation, the mall is almost fully occupied. We expect Jem to perform in line with other strategically located suburban malls.

Reiterate ADD, with an unchanged DDM-based TP

• We reiterate ADD on Lendlease Global Commercial REIT and an unchanged Target Price of S$0.85. We believe Lendlease Global Commercial REIT is a domestic recovery proxy following the COVID-19 outbreak, and we continue to like the income stability provided by the long lease structure of Sky Complex and annual rent escalation from > 90% of its NLA.
• See Lendlease REIT Share Price; Lendlease REIT Target Price; Lendlease REIT Analyst Reports; Lendlease REIT Dividend History; Lendlease REIT Announcements; Lendlease REIT Latest News. 
• Lendlease REIT's share price trades at an attractive valuation of 6.4% FY21F dividend yield and 0.8x FY20 P/BV (vs. sector average of 0.9x P/BV and pre-COVID-19 peak of 1.1x FY20 P/BV).
• Potential re-rating catalyst/downside risks include faster/slower-than-expected recovery from the COVID-19 outbreak.

EING Kar Mei CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-01

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