Lendlease Global Commercial REIT: As Stable As They Come

Timothy Ang  |   27 May 2021  |    119 views

Lendlease Global Commercial REIT (LREIT) owns a S$1.4bn portfolio of retail and office assets comprising 313@Somerset, Sky Complex (a Grade A office asset in Milan, Italy), and a 3.75% stake in Jem (in Jurong, Singapore). LREIT is sponsored by Lendlease Corporation Limited, a member of Lendlease Group, one of the largest developers in the world with a development pipeline of A$113bn.

Metrics (as at 31 March 2021)

  • Market cap (as at 25 May 2021): S$886mn
  • Gearing: 35.4%
  • Portfolio occupancy: 99.7%, did not dip below 99% throughout pandemic
  • Interest cover: 4.1x

Portfolio as at 31 March 2021, (S$1.4bn valuation)

  • 313@Somerset: Singapore; retail; occupancy 98.6%; 58% of FY20 net property income; key tenants: Zara & Food Republic; WALE: 1.5y by gross rental income.
  • Sky Complex: Milan, Italy; 3 office buildings; 100% occupied by Sky Italia until 2032; 42% of FY20 net property income.
  • Jem: Jurong, Singapore; retail & office; 3.75% stake; anchor tenants: NTUC FairPrice & IKEA; office 100% occupied by long-term tenant Ministry of National Development; LREIT is looking to acquire the remaining 96.25% stake.

Commentary

+ Highly stable portfolio. Sky Complex is 100% leased to anchor tenant Sky Italia until 2032, and comes with rental escalations based on inflation (consumer price index) that cannot be negative. 313@Somerset saw tenant sales at recover to 94% of pre-covid levels as at 31 March 2021. Located in Orchard Road and direct access to Somerset MRT, 313 is popular, bringing in 8x Singapore’s population annually during pre-pandemic times. Occupancy is near full at 98.6% as at 31 March 2021. LREIT’s total portfolio occupancy is currently almost full at 99.7%.

+ Healthy balance sheet. Gearing is 35.4%; management’s comfortable gearing level is 40%. S$147.3mn of undrawn credit facilities; covers more than 2 years of maturing debt. No debt expiring until FY23. 100% unsecured debt. This provides headroom for gearing to increase upon acquisition of the remaining 96.25% of Jem.

* Planned acquisition of 96.25% stake in Jem. Jem is one of Singapore’s largest suburban malls, with anchor tenants NTUC Fairprice and IKEA occupying 30% of the space. Its high fixed recurring income will add resilience to LREIT’s portfolio. LREIT currently owns 3.75% of Jem, acquired on October 2020 for S$45mn. Based on the price paid, Jem’s valuation is roughly S$1.2bn. The acquisition is yet to be confirmed. Debt and equity funding will be explored for the acquisition.

Summary

We are positive on LREIT’s credit profile despite the near-term covid outbreak. LREIT’s attractive retail and office assets allows the REIT to achieve near full total portfolio occupancy of 99.7%. Occupancy did not dip below 99% throughout the pandemic.

 

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