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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) | SGinvestors.io 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.



WHAT’S NEW


313@Somerset benefits from the return of office employees and tourists.

  • 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, a dominant suburban retail mall.

  • 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.

Acquisition of PLQ on the card over the longer term.

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

Inclusion into FTSE EPRA Nareit.

  • 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.


STOCK IMPACT

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


EARNINGS REVISION/RISK



VALUATION/RECOMMENDATION

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


SHARE PRICE CATALYST

  • 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



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