Lendlease REIT: Should You Buy Shares After Its Latest Earnings?

Lendlease REIT Somerset

Tim Phillips

May 24, 2022

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Investors are at the back end of earnings results for many Singapore companies listed on the local stock market – the Singapore Exchange (SGX).

As real estate investment trusts (REITs) make up such a large part of the stock market here – both in terms of market cap and turnover – it’s worth revisiting the numbers for some of the smaller Singapore REITs.

While they may not be as well known, or popular, as the large-cap REITs, many still own attractive global real estate assets.

One particularly interesting REIT for dividend investors is Lendlease Global Commercial REIT (SGX: JYEU), which reported its Q3 fiscal year (FY) 2022 business update at the beginning of this month.

So, for investors looking for reliable and tax-free dividend income, does Lendlease REIT’s latest earnings mean its shares are a potential buy?

Owning familiar Singapore properties

For investors who aren’t familiar with Lendlease, it’s worth mentioning that the REIT owns three properties and a plot of land on Grange Road that is being redeveloped.

These three properties are [email protected] and Jem, both in Singapore, while the remaining property is a collection of three commercial buildings named Sky Complex in Milan, Italy.

The REIT was also awarded a tender to redevelop a car park on Grange Road, which will be turned into a multifunctional event space – linking it with [email protected]

Lendlease listed shares on the SGX in October of 2019, with an offer price of S$0.88 per unit.

As for the REIT’s latest Q3 FY2022 business update (for the three months ending 31 March 2022), there were some positive numbers for investors to digest.

Lendlease maintained an impressively high portfolio occupancy rate as of 31 March 2022, at 99.9%. This is a rate that hasn’t deviated much over the previous two quarters either.

As for its portfolio’s weighted average lease expiry (WALE), this was at 8.2 years by net lettable area (NLA) and 4.3 years by gross rental income, or GRI (see below).

Lendlease REIT WALE portfolio occupancy Q3 FY2022

Source: Lendlease Global Commercial REIT Q3 FY2022 business update

New acquisition of JEM

For investors, one of the most recent exciting developments was the completion of its acquisition of the Jem shopping mall in Singapore.

A suburban mall, Jem had a 100% occupancy as of 31 March 2022 and has a WALE of 5.9 years by GRI.

The acquisition increases its assets under management (AUM) by more than 100% as Jem’s standalone valuation of  S$2.08 billion is more than the S$1.4 billion combined valuation of [email protected] and Sky Complex.

While Lendlease REIT’s gearing ratio will increase to around 40.7% after the acquisition (which closed in April), its interest coverage ratio (ICR) is still a solid 10.7 times.

Furthermore, its weighted average cost of debt is a respectable 0.98% per annum, meaning the REIT has a relatively low cost of capital given its strong fundamentals and its portfolio’s long WALE.

Promising but be aware of risks

Overall, it was another solid period for Lendlease REIT yet dividend investors should be aware that Jem’s retail mall will make up nearly 50% of the REIT’s AUM after completion.

Meanwhile, at its Sky Complex in Milan, Lendlease’s commercial buildings are 100% leased out to Sky Italia – a large cable network in Italy.

That means there’s a certain element of tenant concentration risk for its commercial space, although this will be somewhat offset by the addition of Jem.

Given its H1 FY2022 distribution per unit (DPU) of 2.4 Singapore cents, Lendlease shares are now trading at a 12-month forward dividend yield of 6%.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.