Lendlease Global Commercial REIT 1QFY22 Business Update - UOB Kay Hian 2021-11-09: Unique Positioning Along Orchard Road Drives Positive Reversion


Lendlease Global Commercial REIT 1QFY22 Business Update: - Unique Positioning Along Orchard Road Drives Positive Reversion

  • 313@Somerset achieved high single-digit positive rental reversion driven by new and renewed leases for F&B outlets. Retailers are attracted to 313@Somerset due to the potential of a multifunctional event space at Grange Road car park, attracting more shopper traffic.
  • Lendlease Global Commercial REIT provides attractive distribution yield of 5.3% for FY22 and 6.0% for FY23. Inclusion in the FTSE EPRA Nareit Developed Asia Index will put Lendlease Global Commercial REIT on the radar of many institutional funds. Maintain BUY.

Lendlease Global Commercial REIT (LREIT) provided business updates for 1QFY22:

  • 313@Somerset: Positive surprise from positive rental reversion. Lendlease Global Commercial REIT (SGX:JYEU) has substantially de-risked by renewing many leases at 313@Somerset. It achieved high single-digit positive rental reversion driven by new and renewed leases for F&B outlets in 1QFY22. Leases expiring in FY22 were reduced to 4% of NLA (previous: 9%) and 11% of gross rental income (previous: 24%). Tenant retention ratio improved to 90%, compared with 61.5% as of Jun 21. Occupancy for 313@Somerset remains high at 98.9%.
  • Shopper traffic and tenant sales have improved by 10.4% q-o-q and 3.1% q-o-q respectively in 1QFY22 despite the cessation of dining in at F&B outlets under Phase 2 (Heightened Alert) from 22 July to 9 Aug 21. New tenants at 313@Somerset include Marks & Spencer (British retailer specialising in clothing, home products and food products), Super Coconut (coconut drink kiosk), Miniso (Japanese-style variety store) and Playmade (Taiwanese bubble tea). Lendlease Global Commercial REIT conducted promotional campaigns to support tenants by driving shopper traffic and tenant sales.
  • Sky Complex: Providing income stability. Occupancy at Sky Complex was maintained at 100%. Sky Italia has made timely rental payments and there are no rental arrears to date. Enquiries on application for season parking have increased, which indicate that more employees plan to return to their offices. Sky Complex provides income stability due to long weighted average lease expiry (WALE) of 10.6 years.
  • Healthy balance sheet. Aggregate leverage is healthy at 34.3% and interest coverage is high at 8.8x. Two-thirds of borrowings are denominated in the Euro, which provides a natural hedge and keeps cost of debt low at 0.90%. Lendlease Global Commercial REIT has no refinancing till FY23.

Redevelopment of car park draws more youths to 313@Somerset.

  • Construction for the redevelopment of Grange youth to 313@Somerset. The event space is expected to be operational by early-23.

Expansion to suburban retail mall through Jem.

  • Jem is an integrated development influence over the decision. Lendlease Global Commercial 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.

Well-deserved recognition with inclusion in key real estate index.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.03 UP 1.010