Lendlease Global Commercial REIT - CGS-CIMB Research 2020-11-03: Recovering Gradually


Lendlease Global Commercial REIT - Recovering Gradually

  • 313@Somerset’s 1QFY21 occupancy was 95.6%; portfolio occupancy 99%. Tenant sales has recovered to 70% of pre-COVID-19 level.
  • Negative rental reversion in 1QFY20, but impact buffered by rent escalation.
  • Reiterate ADD on Lendlease Global Commercial REIT with an unchanged Target Price. The stock is trading at 0.7x P/BV. Sky Complex and annual rent escalation should help mitigate COVID-19 impact.

1QFY21 occupancy remained high; better tenant sales and traffic

  • Lendlease Global Commercial REIT (SGX:JYEU) maintained a healthy overall portfolio occupancy of 99%, with a long WALE of 9.5 years by NLA (relatively unchanged from 4QFY20). 313@Somerset’s (313) occupancy and tenant retention rates were stable at 95.6% and 80.0%, respectively, as of Sep 2020.
  • Lendlease Global Commercial REIT recently secured a new tenant, which we understand is a virtual reality operator, to replace an outgoing tenant within the fashion and accessory trade sector. This will raise the committed occupancy rate at 313 by 2.4% pts to 98.0%. 313’s 1QFY21 tenant sales and visitations grew 3.5x and 2.8x q-o-q to reach S$42.6m and S$6.2m, respectively, representing c.70% and c.60% of pre-COVID-19 levels. Both metrics remained stable on a m-o-m basis in Jul to Sep 20.
  • Rental reversion declined by double digits in 1QFY21, but we understand that these leases came with an annual review and a higher component of gross turnover rent (GTO).

Expect near-term rental pressure for 313, but traffic should improve

  • The manager has made provisions for rental rebates for its tenants at 313 and does not expect any more rental rebates in FY21F if the situation remains status quo. Meanwhile, Sky Italia has fulfilled all rental payments to date, with no rental waiver granted.
  • The Urban Redevelopment Agency has ceased carpark operations at Grange Road carpark, and Lendlease Global Commercial REIT is expected to take over the site in Dec 2020 for redevelopment works. We believe that operationally, 313 is showing signs of improvement, although we expect near-term rental pressures from the COVID-19 headwinds. Footfall and tenant sales would continue to be driven by domestic demand in the near term, but further easing of restrictions and more people returning to work in Singapore could add positive traction, in our view.
  • Compared with other pure retail REITs, Lendlease Global Commercial REIT is in a better position given that over 90% of its portfolio NLA has built-in annual rent escalation, partially supported by the long-lease structure of Sky Complex.
  • Lendlease Global Commercial REIT’s debt maturing profile remains healthy, and it should not face refinancing risks until FY23F. In 1QFY21, gearing came in at 35.6% (+0.5% q-o-q) and interest coverage improved to 9.2x as of Sep 2020 (from 9.0x in 4QFY20).

Reiterate ADD, with an unchanged DDM-based Target Price of S$0.85

EING Kar Mei CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-03
SGX Stock Analyst Report ADD MAINTAIN ADD 0.854 SAME 0.854