Lendlease Global Commercial REIT - CGS-CIMB Research 2022-11-08: Good Leasing Traction To Kick Start The Year

Lendlease Global Commercial REIT - Good Leasing Traction To Kick Start The Year

  • See Lendlease REIT's announcement dated 07 Nov 2022 for its 1QFY23 (Jul to Sep 2022) operational update. No financials in this operational update.
    • Lendlease REIT signed 9.4% GRI in 1Q, reducing FY23 lease expiries from 23.9% to 14.5% of GRI.
    • 1QFY23 retail reversions were positive at ~1% (FY22: +3.6%), weighed down by replacement of anchor leases at 313@Somerset that were expiring at higher rents due to built-in rental escalations.
    • Shopper footfall recovered to ~93% of pre-COVID levels, while tenant sales came in at 113% of pre-COVID levels, above 3QCY22’s retail sales values of 109%.
    • Occupancy cost decreased by 10% and 3-5% y-o-y at 313@Somerset and JEM, indicating more room to push rents.
    • Portfolio occupancy slipped 0.3ppts q-o-q from 99.6% to 99.3% as at 1QFY23, due to transitional vacancies at 313@Somerset which resulted in its occupancy sliding from 99.9% to 98.1%.
  • Cost of debt increased q-o-q from 1.69% to 2.24% due to refinancing and higher base rates on floating loans. As a result, interest coverage ratio declined from 9.2x to 6.9x. Adjusted interest coverage ratio, which factors in coupon obligation to perpetual security holders, stands at 2.3x as at 1QFY23, capping Lendlease REIT's regulatory gearing at 45%, still a comfortable ~5ppts away from current gearing of 39.4%.
  • 61% of Lendlease REIT’s borrowings on fixed rates. Management is of the view that interest rates will peak in the next 1-2 quarters, and as such, it will refrain from hedging more loans at these temporary elevated rates. No more refinancing required for FY23.
  • 63% of borrowings are from sustainability-linked loans with interest rate step-down features upon attainment of ESG targets. We understand from management that Lendlease REIT has already met the step-down criterion, however, step-downs will only be effected after the ESG targets have been validated by lenders.
  • Lendlease REIT has ~10k sqft of unutilised GFA at 313@Somerset to be deployed. Management intends to accelerate the deployment of the unutilised GFA by end-FY23, which in addition to built-in rental escalations and positive reversions, should provide rental and valuation uplift, mitigating deterioration of interest coverage and gearing.
  • We keep our FY23-25F DPU estimates for Lendlease REIT unchanged. DDM-based target price for Lendlease REIT falls from S$1.02 to S$0.88 as we impute higher risk-free rate, raising our COE from 7.2% to 8.0%.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

LOCK Mun Yee CGS-CIMB Research | Natalie ONG CGS-CIMB Research | https://www.cgs-cimb.com 2022-11-08

Previous report by CGS-CIMB:
2022-08-09 Lendlease Global Commercial REIT - Recovery In Tenant Sales Outstripping Market.

Price targets by 2 other brokers at Lendlease REIT Target Prices.
Listing of research reports at Lendlease REIT Analyst Reports.

Relevant links:
Lendlease REIT Share Price History,
Lendlease REIT Announcements,
Lendlease REIT Dividends & Corporate Actions,
Lendlease REIT News Articles

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