LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)
Lendlease Global Commercial REIT - Revival Of High Speed Rail A Potential Bonanza
- Jem, Lendlease REIT (SGX:JYEU)’s largest asset which accounts for 59.3% of its portfolio valuation, will benefit from the revival of the High Speed Rail (HSR). The upcoming HSR, if agreed and constructed, would bring more vibrancy to Jurong Gateway as the second CBD in Singapore. Jem will benefit from an increase in shopper traffic due to patronage of employees working in office buildings nearby and tourists from across the ASEAN region.
- BUY Lendlease REIT for its attractive FY23 distribution yield of 6.2%. Target price: S$0.99.
Warmer ties rekindle High Speed Rail.
- Prime Minister Ismail Sabri Yaakob has expressed Malaysia’s eagerness to revive the 350km Kuala Lumpur (KL)-Singapore High Speed Rail (HSR), which cuts travelling time between KL and Singapore to 90 minutes. If possible, the Malaysians would like to speed up the planning process as Malaysia also wants to establish a HSR between Kuala Lumpur and Bangkok. The HSR could connect Singapore all the way to Bangkok if all three ASEAN countries can reach an agreement.
- Prime Minister Lee Hsien Loong stated that Singapore would be receptive to fresh proposals on the HSR project during a joint press conference with Datuk Seri Ismail to launch the Vaccinated Travel Lane – Land in Dec 21. Since then, the ministries of transport of both Singapore and Malaysia have been in constant dialogue.
- Terminal station forHigh Speed Rail is located near Jem. The terminal station for the HSR in Singapore would be situated at Jurong Lake District. The 12ha site is currently occupied by Jurong Country Club and is 600m from Jurong East MRT Station, which is served by the North-South and East-West MRT lines. Connectivity will be enhanced when Jurong Region Line Phase 2 is completed in 2027.
- Prime beneficiary of the KL-Singapore HSR. Lendlease REIT’s newly acquired Jem is located adjacent to the Jurong East MRT Station, which is 600m away from the HSR’s terminal station. Jem has become Lendlease REIT’s largest asset, accounting for 59.3% of portfolio valuation (suburban retail: about 46%, office: about 13%) after Lendlease REIT completed the acquisition of the remaining 68.2% stake on 22 Apr 22.
- Jem will benefit from increased shopper traffic. The upcoming HSR, if agreed and constructed, would bring more vibrancy to Jurong Gateway as the second CBD in Singapore. Jem will benefit from an increase in shopper traffic brought about by the patronage of employees working in office buildings nearby and tourists from across the ASEAN region.
Benefitting from development of Jurong Gateway as the second CBD.
- Jem is a popular suburban mall with shopper traffic at 22m per year and occupancy at 100%. The link bridge connecting Jem to Perennial Business City with NLA of over 1m sf is already completed. Perennial Business City is expected to progressively commence operations in 2022, which will increase the flow of office workers visiting Jem during lunch time and after work.
- Maximising returns from Jem. The retail component (65% of NLA) achieved positive rent reversion in FY22 and provides annual rental escalation of 3.2%. The suburban mall has an attractive mix of anchor tenants, such as IKEA, FairPrice Xtra, Don Don Donki, H&M, and UNIQLO. The office component (35% of NLA) is fully leased to the Ministry of National Development (MND) under a 30-year lease with mark-to-market rent reviews every five years. With ownership of Jem at 100%, Lendlease REIT can generate recurrent savings of S$5.6m per year from tax transparency.
- Strengthened tenant mix and brand engagement at Jem. Kopitiam Food Hall has leased 18,000sf of retail space. The new food court is currently undergoing fitting out and will open at Jem in Sep 22. The food court will introduce a new concept of serving all cuisines around Asia in a cosy nature setting. Lendlease REIT has converted the seating area at basement 1 into two leasable units (850sf). Management plans to unlock additional NLA at level one (4,600sf) to cater for demand for more retail space. Jem has started to lease its atrium space to increase tenants’ brand engagement with shoppers.
Focusing on expansion in Singapore.
- Lendlease REIT plans to grow through acquisitions by tapping on the SG investors right of first refusal (ROFR) provided by its sponsor.
- Lendlease Group has a strong presence in Singapore through Paya Lebar Quarter (30% stake) and redevelopment of Comcentre (49% stake). SingTel (SGX:Z74) and Lendlease have entered into a 51:49 JV to redevelop Comcentre at 31 Exeter Road. The new Comcentre comprises two 20-storey buildings with 1,184,000sf of premium grade/Grade A office space and 32,300sf of retail space, including SingTel’s new flagship store.
Lendlease REIT - Earnings forecast revision and recommendation
- We maintain our existing DPU forecasts for Lendlease REIT. Maintain BUY recommendation on Lendlease REIT.
- Our target price for Lendlease REIT of S$0.99 is based on DDM (cost of equity: 7.25%, terminal growth: 2.2% (previous: 2.0%)).
- Lendlease REIT's share price trades at an attractive FY23 distribution yield at 6.2% (CapitaLand Integrated Commercial Trust (SGX:C38U): 5.5%, Frasers Centrepoint Trust (SGX:J69U) 5.7%, Mapletree Pan Asia Commercial Trust (SGX:N2IU): 5.7% and Suntec REIT (SGX:T82U): 6.4%).
- See
- Catalysts:
- The cap on group size of 10 persons for dining in at F&B establishments was lifted and all employees were allowed back to their offices since 26 Apr 22. The easing of such measures would increase SG investors shopper traffic and tenant sales at 313@Somerset and Jem.
- Reopening of Singapore’s international borders with the vaccinated travel framework (VTF) uld bring tourists back to 313@Somerset.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-08-31
SGX Stock
Analyst Report
0.99
UP
0.960
