3 Things You Should Know About Lendlease REIT

Lendlease REIT is Singapore's newest commercial REIT that was listed on 2nd October 2019. Its initial portfolio comprises a leasehold interest in 313 @ somerset and a freehold interest in Sky Complex, which comprises three office buildings located in Milan. Lendlease REIT is strongly sponsored by the Lendlease Group which is a leading international property and infrastructure group with operations in Australia, Asia, Europe, and the Americas and is also listed on the Australian Securities Exchange. Lendlease REIT quickly gained popularity among Singapore investors with a current market capitalization of $800 million at its current share price of $0.67. Here are 3 things you should know about Singapore's latest commercial REIT. 


Prudent Capital Management

Lendlease REIT has a current debt gearing ratio of 35.1% as of 30 June 2020 and is well within my appropriate range of <40%. REITs often use debt as leverage to acquire more properties and investments to expand their portfolio at a faster rate. A REIT mustn't over-leverage to prevent running into cash flow problems in the future. Lendlease REIT has a weighted average debt maturity of 3.1 years and interest rate risk 100% hedged to fixed-rate debt through interest rate swaps and options. Moreover, Lendlease REIT management has managed to secure its major debt payment (Euro term loan) at a low-interest rate of 0.58% per annum and it has $97 million worth of uncommitted and undrawn debt facilities. Lendlease REIT has a strong balance sheet with total assets worth $1.5 billion and total liabilities worth $563 million. Lendlease REIT is highly unlikely to run into cash flow problems and have difficulties paying investors dividends in the future given its prudent capital management style. 







High-Quality Properties 

Lendlease REIT's portfolio consists of a 99-year leasehold interest in 313@somerset in Singapore and a freehold interest in Sky Complex in Milan with a combined valuation of $1.4 billion as of 30 June 2020. The Sky Complex in Milan comprises of three Grade-A office buildings that have excellent accessibility via the public transport system. Lendlease REIT's tenant portfolio may not be as diversified compared to other blue-chip commercial REITs in Singapore that owns many more properties but their high-quality properties ensure that they can maintain a high occupancy rate most of the time. Lendlease REIT has a high tenant occupancy rate of 97.8% (>90%) in 313@somerset and 100% in Sky Complex. The redevelopment of Grange Road Car Park is expected to strengthen Lendlease REIT's retail and lifestyle presence in the somerset area. The multiple dedicated event spaces are expected to be operational in the first half of 2022 and include an independent cinema, hawker stalls, and food/beverage attractions. On the other hand, the Sky Complex in Milan is fully leased to Sky Italia (Owned by Comcast Corporation) and has a long lease term till 2032, providing stable income to Lendlease REIT's portfolio. The triple-net lease structure for Sky Complex minimizes operational costs and risks for Lendlease REIT. Lendlease REIT's high-quality properties and stable income are part of the reasons it quickly gained popularity among investors in Singapore. 






Promising Dividends 

Lendlease REIT's dividend yield for FY2020 was around 4.55% and dividend per share of 0.03 cents. This is around the average dividend yield for Commercial REITs in Singapore for FY2020 due to the adverse impacts of COVID-19. The COVId-19 pandemic affected the projected net property income from 313@somerset causing Lendlease REIT's net property income to be 53.3% lower than forecasted and distributable income to be 62.2% lower than forecasted. This was mainly due to Singapore's circuit breaker measures which sharply decreased shopper traffic from March to June, adversely impacting revenue generated from 313@somerset for Lendlease REIT. However, stable revenue from Sky Complex helps to protect Lendlease REIT's portfolio income during this COVID-19 pandemic. With government measures easing in Singapore and shopper traffic gradually increasing to its pre-COVID levels, investors can expect a much larger dividend yield from Lendlease REIT in the coming years due to its high-quality properties with high occupancy rates. Lendlease REIT's dividend per share is bound to increase in the future as soon as 2021. 





Verdict

In my opinion, Lendlease REIT is a good stable commercial REIT to add to your portfolio for the long run due to their stable income from their Sky Complex property. Its prudent capital management style and high-quality properties make it a very attractive REIT. One of the potential flaws of Lendlease REIT might be its over-reliance on its Sky Complex properties, particularly Comcast Corporation tenant. However, it is highly unlikely Comcast Corporation would not be able to pay its rental due to it being an extremely successful and large company with a net income of $13 billion in 2019 alone. At its current price of $0.67 and a price to book ratio of 0.81, Lendlease REIT is definitely trading at a discount now.

Source: Lendlease REIT 4Q FY2020 Financial Results

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