Lendlease Global Commercial REIT 1HFY22 - UOB Kay Hian 2022-02-07: Continual Enhancement Of 313@Somerset


Lendlease Global Commercial REIT 1HFY22 - Continual Enhancement Of 313@Somerset

  • 313@Somerset achieved high single-digit positive rental reversion in 1HFY22. The mall downtown has utilised 660sf of untapped GFA to expand leasable space at two prime units at the ground floor leased to Puma (sportswear) and Ohayo Mama San (concept cafe). The redevelopment of Grange Road car park into a multi-functional event space is expected to be operational by early-23.
  • Lendlease REIT (SGX:JYEU) provides an attractive distribution yield of 6.2% for FY23.

Lendlease Global Commercial REIT's 1HFY22 Results

  • Lendlease Global Commercial REIT (Lendlease REIT) reported DPU of S$0.024 for 1HFY22 (+2.6% y-o-y), which is in line with our expectations.
  • Revenue headwinds from COVID-19 pandemic and weak Euro. Gross revenue and NPI declined 5.8% and 2.5% y-o-y respectively. Contribution from 313@Somerset was affected by double-digit negative rental reversion incurred in FY21. Contribution from Sky Complex was affected by the sharp 5% y-o-y depreciation of the Euro against the Singapore dollar. Property operating expenses dropped 14.9% y-o-y primarily due to an absence of provisions for doubtful debts of S$1.5m incurred in 1HFY21.
  • 313@Somerset saw continued recovery in occupancy. Lendlease REIT’s portfolio occupancy reached an all-time high at 99.9%. Occupancy at 313@Somerset improved 0.8ppt q-o-q to 99.7% in 2QFY22. Sky Complex maintained full occupancy of 100%.
  • Rental reversion for 313@Somerset turned around to positive territory. Lendlease REIT achieved a high single-digit positive rental reversion in 1HFY22. Lendlease REIT strengthened the tenancy mix and refreshed new offerings to rejuvenate 313@Somerset. New tenants include Oakley (sports equipment), Pearly Lustre (jewellery), Chimi’s (Mexican food) and Ramburger (western food). 313@Somerset has a high tenant retention rate of 75.8%. Only 2% of the portfolio’s total NLA is due for renewal for 2HFY22.

Deploying bonus GFA for new tenancies on prime spaces.

  • 313@Somerset has untapped GFA of 10,860sf due to the Ministry of National Development on a 30-year lease.

Healthy balance sheet.

Redevelopment of car park draws shopper traffic to 313@Somerset.

  • Construction for the redevelopment of Grange Road Car Park into a multi-functional event space commenced at end-21. The space is anchored by Live Nation, a leading live entertainment company listed on the NYSE (ticker: LYV US). The redevelopment provides double-digit ROI with average rent for NLA of 42,000sf at high single digits. Live Nation will organise 4-5 events per day with an audience of 2,500-3,500 persons per event, which will draw more youth to 313@Somerset. The event space is expected to be operational by early-23.

Acquiring the remaining 68.2% stake in Jem.

  • The two funds Lendlease Jem Partners Fund (LLJP) and Asia Retail Investment Fund 3 (ARIF3) have reached their liquidity window this year whereby its investors have to decide whether to hold or divest Jem. Being the largest investor in both LLJP and ARIF3, Lendlease REIT has significant influence over the decision. Lendlease REIT plans to acquire the remaining 68.2% stake in Jem worth S$1.2-1.4b within the next 12 months.

Maintained our existing DPU forecast for Lendlease REIT

Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-02-07
SGX Stock Analyst Report BUY MAINTAIN BUY 1.030 SAME 1.030