Lendlease Global Commercial REIT - UOB Kay Hian 2021-08-18: Growth From The Redevelopment Of Grange Road Car Park & Acquisition Of Jem

LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)

Lendlease Global Commercial REIT - Growth From The Redevelopment Of Grange Road Car Park & Acquisition Of Jem

313@Somerset benefits from the return of employees to their workplace starting 19 Aug 21 and tourists would start trickling in starting 4Q21. The multi-functional event space is expected to be operational by early-23, drawing more youths to 313@Somerset. The successful acquisition of Jem will pave the way for Lendlease Global Commercial REIT (Lendlease REIT, SGX:JYEU) to acquire other properties in the sponsor pipeline.
Lendlease REIT provides a distribution yield of 5.4% for 2021 and 6.1% for 2022. Maintain BUY. Target price: S$1.01.

Shopper traffic and tenant sales at 313@Somerset were 70% and 92% of pre-pandemic levels in 4QFY21 (April to June). This is a respectable performance contributed mainly by domestic consumers. Up to 50% of employees will be allowed to return to work at their workplace starting 19 Aug 21, which will increase shopper traffic from employees working downtown. 80% of Singapore’s population is expected to be fully vaccinated by September, which paves the way for Singapore’s international borders to reopen to fully-vaccinated travellers starting 4Q21. Tourists will start trickling to 313@Somerset as well.
Redevelopment of Car Park draws more youths to 313@Somerset. Construction for the redevelopment of Grange Road Car Park into a multi-functional event space is scheduled to commence by end-21. The project is 100% pre-committed and is anchored by Live Nation, a leading live entertainment company listed on NYSE. Other tenants are F&B establishments, museum and cinema. The redevelopment provides double-digit ROI with average rent for NLA of 42,000sf at high single-digit. Live Nation will organise 4-5 events per day with audience of 2,500-3,500 persons per event, drawing more youth to 313@Somerset. The event space is expected to be operational by early-23.

Jem is an integrated development with total NLA of 892,000sf (retail: 65%, office: 35%) at Jurong Gateway, touted as Singapore’s second influence over the decision. Lendlease REIT plans to sew up the acquisition of the remaining 68.2% stake in Jem worth S$1.2-1.4b within the next 12 months.

Paya Lebar Quarter (PLQ) is an integrated development stage when its leases have stabilised.

The investable market cap threshold for the FTSE EPRA Nareit Developed Asia Index was reduced from 0.3% to 0.1%. Thus, the free-float market cap criterion was lowered from US$1.2b to US$411m. Lendlease REIT is eligible based on the new criteria and is a potential candidate for the inclusion to the FTSE EPRA Nareit Developed Asia Index.

Tapping on sponsor’s unitholders. There is an alignment of interest with Lendlease Group holding a 25.3% stake in Lendlease REIT.

Attractive yield spread and discount to NAV. Lendlease REIT provides attractive distribution Discount Model (cost of equity: 6.0%, terminal growth: 1.0%).

Normalisation in domestic consumption due to progressive reopening and successful completion of COVID-19 vaccinations.
The return of tourists with gradual and calibrated reopening of Singapore’s international starting 4Q21.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-08-18

SGX Stock Analyst Report BUY MAINTAIN BUY 1.010 SAME 1.010