Lendlease Global Commercial REIT - CGS-CIMB Research 2021-02-10: Slowly But Surely

LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)

Lendlease Global Commercial REIT - Slowly But Surely

Lendlease Global Commercial REIT's 1HFY21 gross revenue/ DPU came in above our expectations, forming 51%/ 54% of our full-year forecasts.
Tenant sales and footfall continue to gain traction, with 10 new leases totalling ~17,000 sq ft signed at 313@Somerset in 1HFY21.
Reiterate ADD, with a higher target price of S$0.86. It is trading at 0.95x FY21F P/BV.

Lendlease Global Commercial REIT (SGX:JYEU) reported a 1HFY21 (Jul 2020 to Dec 2020) gross revenue/ DPU of S$41.6m/ 2.34 cents, which were 3.2%/0.8% y-o-y higher on an annualised basis, above our expectations, forming 51%/54% of our full-year forecasts.
Lendlease Global Commercial REIT’s stronger revenue was mainly attributable to a stronger Euro against S$ and the effect of providing all provisions for potential impact from COVID-19 in FY20. The slower y-o-y growth in NPI vs revenue in 1HFY21 was mainly due to the prudent provision of S$1.5m for doubtful debts, which offset the operating cost savings from 313@Somerset.
Lendlease Global Commercial REIT was also awarded the GRESB 5-Star rating, ranking first and second in the Asia Retail and Global Retail categories respectively, reflecting the portfolio’s high quality and adherence to global ESG standards, in our view.

Overall portfolio remained robust with a high occupancy of 99.7% and long WALE of 9.3 years by NLA.
In 1HFY21, 10 new leases were signed by Lendlease Global Commercial REIT, totalling ~17,000 sq ft (based on our estimates), a strategy to rejuvenate the mall for the future. New World Carnival (NWC, Virtual Reality) and Paris Baguette (F&B) are the two largest new tenants signed, accounting for > 50% of new leases by NLA. According to our checks over the past weekend, Paris Baguette was relatively filled in the afternoon, while NWC was still under construction (to be operational by end-Feb 2021).
Tenant sales recovered to S$50.8m in 2QFY21 (+20% q-o-q), while footfall improved to 7m (excluding e-commerce sales and traffic). While tenant sales/ footfall are at 73%/ 61% of pre-COVID-19 levels in the same quarter, we expect the continued ramp-up in vaccine rolls-outs and the further relaxation of social-distancing measures to accelerate tenant sales and footfall.

We increase our Lendlease Global Commercial REIT's FY21-22F DPU forecast by 6-8%, factoring in mainly lower-than-expected operating expenses. Lendlease REIT's share price is trading at ~6% yield and 0.95x P/BV vs 1.1x pre-COVID-19 (Jan 20). Reiterate ADD, at a higher DDM-based target price of S$0.86.
While we expect Lendlease Global Commercial REIT to face rental pressures in FY21F as its tenants continue to face uncertainties from COVID-19 headwinds, we believe annual rental escalations in ~60% of the mall’s NLA, the long lease structure of Sky Complex, and the 44,200 sq ft Grange Road redevelopment (expected to be operational in 1H22) will be able to cushion negative rental reversions for renewed leases going forward.
See Lendlease REIT Share Price; Lendlease REIT Target Price; Lendlease REIT Analyst Reports; Lendlease REIT Dividend History; Lendlease REIT Announcements; Lendlease REIT Latest News.
Potential re-rating catalysts/ 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 2021-02-10

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