Lendlease Global Commercial REIT – Q1 FY2021 Business Update Review

Lendlease Global Commercial REIT announced its Q1 FY2021 business update this morning which I will quickly go through below.

As some of you might already know from my previous update, Lendlease REIT remains one of my biggest portfolio holdings and I am cautiously confident it will continue to become a good investment for the mid to longer term.

I have also summarized the previous Lendlease Q&A on my Facebook page which you can find here.

Q1 FY2021 Business Update:

The First Quarter (“1 Jul 2020 to 30 Sep 2020”) business update released did not provide much information on the financial numbers (yet), but we can infer and take reference from the operational update given.

During Q1, tenant sales and footfall visitors at 313@Somerset continue to show signs of recovery as we all expected since the soft reopening of phases 2 and 3. 

Visitors Footfall recovered 60% QoQ as compared to pre-Covid levels but what is more impressive is Tenant Sales have recovered stronger at 70% QoQ. You would expect most people to do window shopping with the soft economy but tenant sales are actually increasing more than the footfall increase, which shows people are actually spending.

I suspect this is due to the increase in marketing spending decisions from the management which intends to help boost tenant sales through various promotion offerings. 

For instance, one of those offerings is through a partnership collaboration with Lazada where shoppers are eligible to purchase Participating Retailers E-Vouchers at a 55% discount on the Lendlease Lazmall page. This is previously a conjunction partnership during the celebration of our 55 years National Day.

For the upcoming 11.11 campaign, they’ll be doing the same so you can head out to Lazmall and see what they’ve got to offer.

What this means in terms of financials is there will likely be an increase in operating expenses which will impact the bottom-line. 

As with other retail REITs that have already announced their business updates, the focus will be on tenant retention and tenant sales, and malls with good management will try to help from that angle, rather than specifically say provides rental rebates back to the tenant.

As of 30 September 2020, 313@Somerset had maintained a healthy occupancy rate of 96% and tenant retention of 80%. Lendlease REIT has also recently secured new tenants that would boost its occupancy rate further to 98% in the Q2 FY2021.

The commercial asset at Sky Complex in Milan continues to be their long term fixed asset yield bond alike, with a long term lease to Sky Italia until 2032. 

During the pandemic, there were no rental waivers given and there were no late payments made so that speaks volumes about the kind of quality the tenant is.

Comparison Across Retail Malls

I tabulated across a very simple comparison across the retail malls that have a presence in the Orchard district (which is one of the most affected areas due to the lack of tourists). I have excluded MCT and FCT because they are more in the suburban mall areas which have no lack of visitors and would be expected to perform better and more resilient.

Turns out most REITs are likely to have seen the bottom in the previous quarter and have bounced back strongly this quarter both operationally and financially.

Most REITs are also still conserving the distribution withheld and this is done in prudency in case there is a need to beef up the working capital for other purposes. Otherwise, this distribution will have to be distributed by the end of FY2021, which will likely see a nice bump for unitholders for most of the REITs.