Lendlease Global Commercial REIT Review @ 22 February 2022

Basic Profile & Key Statistics

Lendlease Global Commercial REIT (LREIT) invests in Retail and Office properties and owns 2 properties in Singapore and Italy.

Performance Highlight

Despite a slight drop in gross revenue and NPI, distributable income and DPU improved YoY due to contribution from additional stake in Jem.

Tenant Sales & Footfall

Tenant sales increased by 7.8% YoY despite a drop in footfall.

Acquisition

On 14 February, LREIT announced for proposed acquisition of JEM. Post acquisition, LREIT would own 100% of JEM instead of indirect holding through associates. The acquisition is to be funded by equity fund raising, issuance consideration units, debt, internal resources and/or issuance of perps. 

Based on the pro-forma financial effects for 1H2022, DPU would be the same if consider the one-off COVID-19 impact, while accretive if exclude one-off COVID-19 impact. NAV per unit on the other hand, drop slightly. Units in issue would be double up and gearing ratio would increase to 40.7%. 

EGM would be held on 7 March to get unitholders approval on this acquisition.

Related Parties Shareholding

• REIT sponsor's shareholding is moderate at 26.533%
• REIT manager's shareholding is moderate at 1.07%
• Directors of REIT manager's shareholding is high at 0.51%

Lease Profile

• Occupancy is high at 99.9%
• WALE is slightly long at 4.5 years
• Highest lease expiry within 5 years is high at 35% which falls in FY2026 and beyond, without breakdown
• Weighted average land lease expiry is long at 88.79 years

Debt Profile

• Gearing ratio is low at 33.5%, include perps, gearing is at 43.7%
• Cost of debt is low at 0.92%
• Fixed rate debt % is high at 90%
• All debts are unsecured debts
• WADM is short at 2 years
• Highest debt maturity within 5 years is high at 65.6%, which falls in FY2024
• Interest coverage ratio is slightly high at 5 times
• Perpetual securities over debts is high at 23.3%

Diversification Profile

• Top geographical contribution is high at 64.3% 
• Top property contribution is high at 64.3% 
• Top 5 properties contribution is high at 100% 
• Top tenant contribution is high at 35.7% 
• Top 10 tenants contribution is high at 57.2%

Key Financial Metrics

• Property yield is low at 3.6% 
• Management fees over distribution is low at 12.6% in which unitholders receive S$ 7.94 for every dollar paid 
• Distribution on capital is low at 3.2%
• Distribution margin is high at 70.5%

Trends

• Uptrend - Distribution Margin
• Slight Uptrend - DPU
• Flat - NAV per Unit
• Downtrend - Interest Coverage Ratio, Property Yield, Distribution on Capital

*DPU at 4Q 2019 is annualized to 6 months to have an apple to apple comparison.

**The interest coverage ratio for 4Q 2019 and 1Q 2020 are estimated to reflect a more closer figure in accordance with the Property Funds Appendix of the Code on Collective Investment Schemes.

Relative Valuation

• P/NAV - Average for 1y & 3y
• Dividend Yield - Above average for 1y; Average for 3y

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Short WADM
High Directors of REIT Manager's Shareholding	Concentrated Debt Maturity
High Occupancy	High Perpetual Securities %
Long Weighted Average Land Lease Expiry	High Top Geographical Contribution
Low Gearing Ratio	High Top Property & Top 5 Properties Contributions
Low Cost of Debt	High Top Tenant & Top 10 Tenants Contributions
High Fixed Rate Debt %	Low Property Yield
100% Unsecured Debt	Low Distribution on Capital
Competitive Management Fees	Interest Coverage Ratio Downtrend
High Distribution Margin	Property Yield Downtrend
Distribution Margin Uptrend	Distribution on Capital Downtrend

From the presentation, the distributable income and DPU have improved due to the additional stake in JEM, despite slight drop in gross revenue and NPI. However, there is no detail breakdown from the distribution adjustment. From the 1H FY22 cash flow statement, there is a S$ 12 mils of dividends received from associates (indirect JEM interest). If we consider the 1.7 mils of dividend income (indirect JEM interest) in the 2H FY21 financial statement to be part of this S$ 12 mils, there is still a surplus of S$ 10.3 mils. So how much has LREIT released from this fund remain a question mark. Moving forward, the next big thing for LREIT would be the acquisition of JEM which the EGM would be held in March.

You could also refer below for more information:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and Detail of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.