Lendlease REIT Excellent Performance Post JEM Acquisition- High Distribution Forward Yield of 6.4%.

Lendlease REIT ("LREIT") announced a beautiful set of 2nd Half 2022 results post acquisition of Jurong East Mall ("JEM"). Its net property income for the same period was S$45.9Mil (increase of +S$19.4Mil or +73%) driven by the additional contributions from JEM as well as post COVID recovery of tenant sales in both 313@Somerset and also JEM itself. The tenant sales actually surpasses the pre-covid level. Distribution yield post JEM acquisition declared is S$0.01312 per unit for 31 March 2022 to 30 June 2022. Annualized yield would thus be S$ 0.05251 per unit which means a 6.4% distribution yield at the last trade price of S$0.82 per unit as at 8 August 2022. This is one of the highest distribution yield among other office and retail REITs on SGX. I also foresee further upside coming from LREIT in the next quarter announcement. A few quick highlights on LREIT:

1. Increasing DPU since listing on SGX

The above depicts the strong financial performance delivered by the management of LREIT for 2H FY2022 as well as for the entire FY2022. Note that its DPU has also been increasing since IPO. Not an easy task given the impact on COVID for the past 2 years. 

2.  25.8% of LREIT is occupied by financially stable tenants- Singapore Government and Sky

The offices portfolio of LREIT in Singapore and Italy are full leased to the Ministry of National Development ("MND") till 2044 and Sky Italia till 2032 respectively.  The MND office at JEM is subject to rental review every 5 years while Sky Complex is subject to annual rental review based on 75% of The Italian National Institute of Statistics consumer price index variation. 

From the diversified tenant base, we can see that the Singapore Government (MNC) and Broadcasting (Sky Italia) tenants made up 25.8% of the total tenants. LREIT thus continues to enjoy strong and stable cashflow from these 2 particular tenants for a long term as alluded to the above.  

3. Future upsides from upcoming Grange Road Carpark redevelopment into event space and potential acquisition of Paya Lebar Quarter Mall 

An independent cinema, hawker stalls and multiple event spaces are set to take over the 48,200 sq ft open-air carpark in Grange Road as part of major efforts to rejuvenate the Orchard Road area spearheaded by LREIT. This will be connected to the existing discovery walk linking up 313@Somerset and bring about increased in footfall and other synergies. 

Another major M&A in the form of Paya Lebar Quarter Mall is also in the future pipeline along with other Singapore properties held by its sponsor, the Lendlease Group.

Parting thoughts

Based on the current pricing of S$0.82 per unit, personally, I think it is very much undervalued by the market given the various upsides as discussed above. It is also giving out a forward distribution yield of 6.4%.