Lendlease Global Commercial REIT - CGS-CIMB Research 2021-08-10: Recovery Gaining Traction

LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)

Lendlease Global Commercial REIT - Recovery Gaining Traction

Lendlease Global Commercial REIT's tenant sales/footfall improved 33.6%/6.2% y-o-y to S$81.5m/11.4m in Jan-Jun 2021; FY21 gross revenue/DPU was in line with our expectations.
We expect further relaxation of restrictions and higher vaccination rates to drive recovery across Lendlease Global Commercial REIT’s retail portfolio.
We reiterate our ADD call on Lendlease Global Commercial REIT with a higher DDM-based target price of S$0.96 as we ascribe a premium to Lendlease Global Commercial REIT on potential Nareit Index inclusion.

Lendlease Global Commercial REIT (SGX:JYEU) reported FY21 (Jul 2020 to Jun 2021) gross revenue/DPU of S$78.7m/S$0.0468, which were 5.6%/14.6% y-o-y higher on an annualised basis, in line with our expectations, forming 97%/101% of our full-year FY21F forecasts respectively.
Lendlease Global Commercial REIT’s stronger performance was mainly attributable to
1. lower rental rebates provided to retail tenants at 313@Somerset (313), and
2. stronger euro against the Singapore dollar from the property at Sky Complex.
Rental reversions have also improved q-o-q, albeit still in negative territory according to the manager.

Lendlease Global Commercial REIT's overall portfolio remains robust with a high occupancy of 99.8% in FY21 (FY20: 99.5%) and long WALE of 8.8 years by NLA. Committed occupancy at 313 reached 99.2% as of end-Jun 21 which was above the average occupancy rate of 91% along Orchard Road, according to Colliers International.
Tenant sales rose 33.6% y-o-y to S$81.5m while footfall recovered 6.2% to 11.4m visitations in Jan-Jun 21. By trade sectors, fashion and accessories and food and beverage tenants (totalling ~45% of portfolio GRI) saw a strong improvement of 37% y-o-y in sales over the same period.
Lendlease Global Commercial REIT expects construction of the Grange Road development to commence by end-2021 and to be completed in 12-18 months’ time. Its anchor tenant Live Nation has committed to about two-thirds of the overall occupancy.
We also expect the continued ramp-up in vaccine rollouts and the further relaxation of social-distancing measures to accelerate tenant sales and footfall at 313 to drive recovery across Lendlease Global Commercial REIT’s retail portfolio. Lendlease Global Commercial REIT is well-capitalised with a gearing ratio of 32% and interest coverage ratio of 8.9x, in our view.

We introduce FY24F forecasts and we lower our cost of equity assumptions from 7.7% to 7.3% as we ascribe a premium for Lendlease Global Commercial REIT’s potential inclusion into FTSE EPRA Nareit Index. We keep our ADD call with a higher target price of S$0.96 for Lendlease Global Commercial REIT.
See
Against a backdrop of ongoing COVID-19 uncertainties, we expect Lendlease Global Commercial REIT to face rental pressures in FY22F but we believe that 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 should cushion negative rental reversions for renewed leases.
Re-rating catalysts/downside risks include inclusion into the Nareit Index and faster/slower-than-expected recovery from the COVID-19 outbreak.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-10

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