Short thoughts on Lendlease Global Commercial Reit

Lendlease Global Commercial Reit will be listing on SGX on 2 October 2019. The application for its IPO will be open to public from 25 September 2019 (Wednesday) to 30 September 2019 (Monday). 

Prospectus can be found here

Will keep this article short as the reit has already been covered by many prominent bloggers such as Investment Moats

Key Information

1)Listing Price of $0.88 per unit is 1.08 of its book value of $0.81

2)Currently the portfolio consist of only 2 properties. The first being 313 Somerset and the second being 3 freehold offices in Italy.

313 Somerset currently has 86 years left on its lease.

3) The gearing ratio upon IPO is expected to be 36.4%

4) The forecasted dividend yield is expected to be 5.8% and 6.01% for 2020 and 2021 respectively based on the IPO price of $0.88 per unit.

5) 1,167,946,000 units will be issued, of which Lendlease Trust would hold roughly 27.2% of it, Roughly 33.1% would be available to the public and private placements. Roughly 38.85% would be placed to cornerstone investors which include Blackrock , Fullerton Fund Management and Nikko Asset Management.

What I like about the reit

1) Institutional Investors are onboard, as such there should be a higher corresponding trading liquidity to the company and allow the company to be better priced.

2)313 Somerset sits just on top of the mrt station and it still has 86 years left of lease which means valuations are unlikely to be adjusted too far downwards in the near future should a recession occur. To add on, there has been little sales of retail mall in the Orchard area. The most recent news would be Starhill Global Reit willing to offer above market price for Isetan's share of Wisma Atria, another retail mall which is just up the road.

3) Effective Interest rate is only 1% currently.

What I dislike about the reit

1) With only 2 properties, it is widely estimated that more properties will be injected into the portfolio and this will likely result in more offering of shares.

2) Projected forecast seems too good to be true on first glance. The forecasted financials seems to indicate that revenue would increase 36.7% from 2020 to 2021 and this would result in a corresponding increase in DPU of 38.4% after distribution adjustments. The revenue increase constitutes a 34.3% revenue increase in its Italy property and 37.7% in 313 Somerset. 

Valuations

	313 Somerset	Wisma Atria	Plaza Singapura	Paragon
Net Property Income Yield	3.1%(2020)/4.32% (2021)	4.85%	5.36%	5%
Occupancy Rate	99.6%	99.6%	99.3%	Not shown
Latest Rental Revisions	Not Shown	Not Shown	+1%	+8.6%

-If anything, the current valuations of the net property income yield for 313 Somerset remains to be below the current market levels even after a 30% increase to be projected in 2021. With higher yield shopping malls having a positive rental revision, I remain fairly optimistic that the income should be able to deliver as forecasted.

According to the S-Reit data provided by fifth person,

CapitaMall Trust trades at 4.41% dividend yield with a gearing of 34.2% and book value of 1.29

SPH Reit trades at 5.08% dividend yield with a gearing of 26.3% and book value of 1.15

Starhill Global Reit trades at 5.97% dividend yield with a gearing of 36.1% and book value of 0.85

My personal thoughts would be that for Landlease Global Commercial Reit to trade at 5.8% dividend yield with a gearing of 36.4% and book value of 1.08 is actually quite attractive.

However we have to be aware that the property's yield is actually currently below its competitors.

Final Thoughts

-Personally I do not think the IPO would stay underwater for the short run as there would most likely be injection of properties into the reit and it would be problematic if they have to issue shares at a cheaper price. Furthermore, this would make the yield trend towards 6% or even higher which would make the reit even more appealing.

-In the long run, many factors such as interest rate environment as well as the yield of property on its future acquisitions and the reit's ability to increase the property income yield would be important as well. Generally if I were to purchase a reit, i would be betting on inflation, economic growth being positive and interest rates to be stable or low .

-I would be applying for the IPO for the reit though i have not decided the amount i would want to put in yet as i would have to assess my expenses going forward and the equity to cash level before making a decision.

As usual, I would end off the post with a k-pop picture.