LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)
Lendlease Global Commercial REIT - Recovery On Brakes
- Lendlease Global Commercial REIT (SGX:JYEU)'s 3Q21 tenant sales and mall visits recovered to 94% and 77% of 3Q20 levels. Rental reversions were less negative. Financial impact of Code of Conduct expected to be immaterial.
- Higher construction costs likely for Grange Road Carpark redevelopment. Shelved AEI for 313 to proceed in stages to ensure minimal disruptions to footfall and sales.
- Maintain ACCUMULATE on Lendlease REIT with DDM target price of S$0.82 (COE 8%).
The Positives
Tenant sales recovered close to pre-Covid levels; improved leasing.
- Lendlease REIT's 3Q21 tenant sales and number of mall visitors recovered to 94% and 77% of 3Q20 levels. The greater recovery in tenant sales was underpinned by growth in February and March. The leasing of 313 recovered slightly. While rental reversions were still negative, they improved q-o-q. 313’s occupancy remained high at 98.6%.
Minimal impact from Code of Conduct.
- Introduced on 26 March 2021, the Code of Conduct for the leasing of retail premises in Singapore provides guidelines for the negotiation of lease agreements in 11 areas, including rental structure, third-party fees, pre-termination by landlords or tenants and data-sharing. Lendlease REIT believes the impact will not be big as its current practice is already largely in line. Any effect will take the form of slightly lower rental and utility income from some leases contracted after 1 June 2021. The overall impact on FY21-22 net property income is expected to be less than 1%.
Event space at Grange Road Carpark substantially leased to Live Nation.
- The new multifunctional event space adjacent to 313 has been substantially leased to Live Nation, one of the world’s leading live entertainment companies, as anchor tenant. Development is expected to commence in 2H21 and be completed in 2022. There are future upside opportunities if we consider joint marketing and cost synergies with 313.
The Negative
Higher development costs expected for redevelopment.
- Due to costlier labour, additional PPE and safe distancing at work sites, the cost of redeveloping the Grange Road Carpark could increase.
- Lendlease REIT had also originally planned to improve the plot ratio at 313. This AEI, though, was temporarily shelved due to COVID-19. Considering the potential increase in development costs, Lendlease REIT has decided to unlock the additional gross floor area in stages. This is to ensure minimal disruptions to the mall’s footfall and sales. We expect AEI contributions to valuations to be delayed till FY22.
Outlook
- As Singapore raises its defense against COVID-19 following the worst outbreak of community infections in close to a year, the occupancy limit for malls has been reduced, again, to one person per 10 sqm of gross floor area from 8 sqm. The ruling will apply till 14 May 2021. Starting 8 May 2021, smaller social gatherings are also mandated, until 30 May.
- We expect footfall in 4Q21 to be compromised, though sales may hold up with more marketing campaigns and initiatives. Lendlease REIT may provide food delivery to help tenants tide through this period. We are not expecting any rental rebates, though.
- Sky Complex in Milan is expected to continue anchoring Lendlease REIT’s portfolio with its stable recurring income.
Maintain ACCUMULATE
- Maintain ACCUMULATE on Lendlease REIT with DDM-based target price of S$0.82.
- Current Lendlease REIT's share price translates to a 6% FY21e distribution yield for total potential upside of 10.8%.
- See
Tan Jie Hui
Phillip Securities Research
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https://www.stocksbnb.com/
2021-05-10
SGX Stock
Analyst Report
0.820
SAME
0.820
