Is Lendlease Global Commercial REIT A Good Buy? [Fundamental Analysis]

In this article, we'll conduct a fundamental analysis and review of Lendlease Global Commercial REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To October 2024

Business Description

Lendlease Global Commercial REIT is an office and commercial (retail) REIT that was listed in 2019 and owns 3 properties and a minor stake in another.

What I Like About Lendlease:

The flagship property (Jem) is a solid sub-urban retail property. Apart from that, generally, the underlying properties had shown to be quite resilient in the short span of their listing.

What I Do Not Like About Lendlease:

REIT is relatively “new” and the manager is not proven in producing yield accretive acquisition. The current strategy is also unclear.
The N.A.V per share has been deteriorating since listing. (Figure 3)
The quality of their capital management has been deteriorating as the management pursued their acquisition in the past few years (Figure 5)
The health of their balance sheet is not the best if you examine their total borrowings and the outstanding perpetual bonds that were issued for capital management but accounted for under equities and not liabilities.
The bulk of the management fees are paid in the form of units which inflates the reported DPU and clouds the intrinsic value (Figure 7)

Updates From Recent Performance (FY 2024)

General Comments:

Excluding the supplementary rent recognized in advance, Gross Revenue and NPI have increased by 3.2% and 1.3% YOY.
The overall occupancy rate dipped to 89.1% at the back of the lease restructuring of Sky Complex, where two of the buildings remain tenanted to Sky Italia until Jan 2033 without pre-termination rights and the third building is in the process of reconfiguration through 2024.
Property valuation declined largely due to the valuation of Sky Complex.

Positive Headwinds:

Central retail performances are expected to improve further on the back of sustained growth in inbound tourism receipts.

Negative Headwinds:

The risk of a strengthening of SGD will further impact Sky Complex’s valuation and performance.
The cost of borrowing is likely going to increase following the refinancing of their debt (around 24%) and the re-pricing of their series 002 perpetual securities in FY2025.

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