Analysts are positive on Lendlease Global Commercial REIT (LREIT) following its latest 1HFY2021 results announcement, which saw distribution per unit (DPU) increase by 0.8% y-o-y to 2.34 cents, with distributable income (DI) increasing by 1.4% y-o-y to $27.5 million.

Gross revenue increased by 3.2% y-o-y to $41.6 million, bringing net property income (NPI) for the first half ended December to $30.4 million, 1.6% higher y-o-y.

Portfolio occupancy remained high at 99.7% as at Dec 31, 2020, with a long weighted average lease expiry (WALE) of 9.3 years by NLA and 4.9 years by gross rental income (GRI). Approximately 2% and 6% of the portfolio net lettable asset (NLA) and GRI remain for renewal and review, respectively, in FY2021.

On the back of this, Phillip Capital continues to rate LREIT “accumulate” with a higher target price of 82 cents from 78 cents previously.

SEE: Lendlease Global Commercial REIT announces DPU of 2.34 cents for 1HFY2021

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Overall, the REIT’s revenue was in line with estimates but NPI and DI exceeded expectations on higher-than-expected NPI margins.

In 2QFY2021, occupancy at 313 @ Somerset improved to 98.7% from 95.6% in the previous quarter, underpinned by new experiential retail and F&B tenants such as Paris Baguette and New World Carnival (VR Arcade). Tenant sales improved 19.5% q-o-q and footfall, 12.4%.

“That said, sales and footfall were still only 75% and 60% of pre-Covid levels, respectively. Tenant retention rate was lower at 58.8% vis-à-vis 80% last quarter as the mall’s mix was adjusted to accommodate more pandemic-resilient concepts such as omnichannel retailing,” says analyst Tan Jie Hui.

Meanwhile in Milan, the northern zone of the Milano Santa Giulia (MSG) district will be developed into a smart urban park to host the 2026 Winter Olympics. Tan believes that this will bring more valuation upside for Sky Complex, located in the south of MSG, which is the new business district of Milan.

On the outlook, Tan says, “LREIT places priority on maintaining occupancy at 313 and helping tenants stay viable. Given this, we believe weak retail demand will continue to weigh on its rents in the short term. Further out, we expect the Singapore government’s plan to vaccinate residents by end-2021 to bolster shopper and visitor confidence in FY2021/FY2022. Stable revenue contributions from Sky Complex are also expected to mitigate Covid-19 risks.”

CGS-CIMB Research too has kept its “add” call on LREIT with a higher target price of 85.8 cents from 85.4 cents previously.

Lead analyst Eing Kar Mei says, “While we expect LREIT to face rental pressures in FY2021 as its tenants continue to face uncertainties from Covid-19 headwinds, we believe annual rental escalations in about 60% of the mall’s NLA, the long lease structure of Sky Complex, and the 44,200 sq ft Grange Road redevelopment (expected to be operational in 1HFY2022) will be able to cushion negative rental reversions for renewed leases going forward.”

According to checks over the past weekend, new tenant Paris Baguette was relatively filled in the afternoon, while NWC was still under construction (to be operational by end-Feb 2021).

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Tenant sales recovered to $50.8 million in 2QFY2021 (+20% q-o-q), while footfall improved to 7 million (excluding e-commerce sales and traffic).

“While tenant sales/footfall are at 73%/61% of pre-Covid-19 levels in the same quarter, we expect the continued ramp-up in vaccine rolls-outs and the further relaxation of social-distancing measures to accelerate tenant sales and footfall,” says Eing.

As at 12.30pm, units in LREIT are trading at 82 cents or 0.9 times FY2021 NAV with a distribution yield of 6.06%, according to PhillipCapital’s estimates.