UOB Kay Hian analyst Jonathan Koh is of the view that Lendlease Global Commercial REIT (LREIT) can benefit from the potential revival of the Kuala-Lumpur-Singapore High-Speed Rail (HSR), maintaining his “buy” call and target price of 99 cents on the REIT.
On Aug 22, Malaysia’s prime minister Ismail Sabri Yaakob said Malaysia is discussing with Singapore the revival of the HSR project.
If revived, the HSR project's terms and conditions would see some changes, Ismail said. If possible, the Malaysians would like to speed up the planning process.
Malaysia also wants to establish a HSR between Kuala Lumpur and Bangkok, which means the HSR could connect Singapore to Bangkok if all three Asean countries can reach an agreement.
Koh says that LREIT’s largest asset, office and retail development Jem will be a “prime” beneficiary of the HSR. Jem is located adjacent to the Jurong East MRT Station, which is 600m away from the HSR’s terminal station.
He highlights that Jem will benefit from increased shopper traffic, adding that “the upcoming HSR, if agreed and constructed, would bring more vibrancy to Jurong Gateway as the second CBD in Singapore.”
Koh points out that Jem will benefit from an increase in shopper traffic brought about by the patronage of employees working in office buildings nearby and tourists from across the
ASEAN region.
Locally, Jem will benefit from the development of Jurong Gateway as Singapore’s second CBD, with Koh describing it as a “popular suburban mall” with shopper traffic of 22 million per year and occupancy at 100%.
A link bridge connecting Jem to Perennial Business City with a net lettable area (NLA) of over 1 million square feet is already completed, and will increase the flow of office workers visiting Jem during lunch time and after work when Perennial Business City is expected to progressively commence operations in 2022.
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For Jem itself, its retail component, - making up 65% of its NLA - achieved a positive rent reversion in FY2022 and provides annual rental escalation of 3.2%.
Koh also notes that the suburban mall has an “attractive mix” of anchor tenants, such as IKEA, FairPrice Xtra, Don Don Donki, H&M, and UNIQLO.
The office component (35% of NLA) is fully leased to Singapore’s Ministry of National Development (MND) under a 30-year lease with mark-to-market rent reviews every five years.
With ownership of Jem at 100%, LREIT can generate recurrent savings of $5.6 million per
year from tax transparency.
Moving forward, Koh says LREIT plans top grow through acquisitions by tapping on the right of first refusal (ROFR) provided by its sponsor, Lendlease Group.
Lendlease Group has a strong presence in Singapore through a 30% stake in Paya Lebar Quarter (30% stake) and a 49% stake in the redevelopment of Comcentre.
The Comcenter redevelopment is a 51:49 joint venture between Singtel and Lendlease, and will comprise two 20-storey buildings with 1.18 million sq ft of premium grade office space and 32,300 sq ft of retail space, including Singtel’s new flagship store.
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Finally, Koh highlights that LREIT trades at an “attractive” FY2023 distribution yield of 6.2%, which is higher than most of its peers.
According to Koh’s estimates, LREIT’s peers, CapitaLand Integrated Commercial Trust (CICT), Frasers Centrepoint Trust (FCT), Mapletree Pan Asia Commercial Trust (MPACT) and Suntec REIT are trading at respective yields of 5.5%, 5.7%, 5.7% and 6.4%.
As at 2.29pm, units in LREIT are trading at 81.5 cents, with a FY2023 P/B ratio of 1.1.
