Here is the 4th episode on whether the main tenants of REITs can afford their rents. Any signs of tenants not able to pay their rents is definitely going to cause a dip in a REIT's price, at least in the short term.

Why short term? Well, the REITs still own the buildings, and what is uncertain is whether another tenant takes up the buildings, or is willing to pay a similar rental rate.


You can check out the previous episodes here:
Part 1 - https://www.llamafinance.com/2020/05/are-you-sure-your-reits-dividend-is.html
EC World - https://www.llamafinance.com/2020/06/can-forchn-holdings-pay-off-rents-to-ec.html
Part 2 - https://www.llamafinance.com/2020/07/are-you-sure-your-reits-dividend-is.html
Part 3 - https://www.llamafinance.com/2020/07/are-you-sure-your-reits-dividend-is_11.html


We have covered ranks 1 to 5 so far, including EC World too! We can see the top tenant revenue contribution being lower in the REITs featured in my latest posts. Do visit my past posts linked above if you are interested to see if the more significant REIT tenants are able to afford the rents.

Rank 1: Elite Commercial GBP REIT at 99%
Rank 2: First REIT at 81.59%
Rank 3: Parkway Life REIT at 58.5%
Rank 4: iReit Global at 45.80%
Rank 5: Keppel DC at 41%
Rank 6: Lendlease Global at 29%
Rank 7: Starhill Global at 22.9%


Without further a-do, let's start!

Lendlease Global REIT
Lendlease REIT Company Announcements (SGX:JYEU) | SG investors.io
I love this REIT. Really! I recently bought into it at a recovered price of $0.580, and sold off at $0.680. Almost ready to jump back in anytime soon. Opps, sorry, the focus should be on its tenants today. Got carried away.

Let's take a look at who are its main tenants, as seen from its 2019 Sep IPO Prospectus:
Okay, we see Sky Italia paying Lendlease Global REIT 28.9% of its rental income. Let's zoom into Sky Italia. 

Comcast is parent of Sky Group (aka Sky Limited). Sky Group is parent of Sky Italia s.r.l.

Sky Italia is part of Sky Group, and Sky Group is in turn wholly owned by Comcast, a US media conglomerate. Prior to the takeover in 2018, Sky Group did release their financial results, and here it is:

It seems Sky Group is a profitable business. Well, there is even growth in business as seen from its rising revenues from 2009 to 2018.

I have dug and managed to find the most recent correspondence from Moody's on Sky Limited (aka Sky Group). Well, Sky Limited is Sky Italia's parent. While we are unable to obtain financial information on Sky Italia, it is next best to get its parent's.

So here goes:

Pre-COVID, we can see a credit rating upgrade to Sky Limited, Sky Italia's parent. According to Moody definitions, A3 rating issuers have a strong ability to repay short-term debt obligations. Baa2 only have an acceptable ability to repay short-term obligations.

In terms of default risk, A3 belongs to upper-medium grade bonds, and has low default risks. Baa2 bonds are judged to be medium-grade and subject to moderate default risk and as such may possess certain speculative characteristics.

In 2018, revenues of Sky Italia itself were 3 billion euros mentioned in the 2019 REIT prospectus.
In 2019, we can see from Dun & Bradstreet that its revenues were 3.07 billion euros (3.51 USD to 3.07 euro conversion). So is there revenue growth for Sky Italia? 

Probably, as D&B is not the most reliable source out there. 


This is not forgetting that Comcast, the ultimate parent of Sky entities is a conglomerate with great financial standing. Here is some information on Comcast from 2019 REIT prospectus:
We can see the similar A3 credit rating from Moody's as described above. Okay, let's take one last step to see if Comcast is a profitable business.


Fair enough, we can see that it is quite profitable and stable, considering it is in the media industry. I think we can conclude that Sky Italia is a good tenant and is able to afford the rents to Lendlease Global Commercial REIT. Sky Italia is itself profitable and is a wholly owned subsidiary of another media conglomerate which has good financial standing.

How about the other tenants?
I'd say they can be considered insignificant, with food republic being the next biggest REIT tenant paying about 3+% of rents to the REIT. I would judge the REIT by the flagship 313 mall instead of tenancies. 

I have just been to the mall last Saturday. It is indeed packed despite being in the Phase 2 after Circuit breaker. Strangely, once I set foot into Orchard Central or Orchard Gateway, it becomes less crowded. It became even worse when I visited Orchard Centrepoint Mall. 

It seems 313 is really strategically positioned and is able to attract the trendiest tenants of all. Haidilao and Chichasanchen themselves seems to be able to retain the crowds in the mall itself. Some shops are closing up, maybe due to COVID, maybe not. But, it seems that other tenants readily take up the shopspace and replace those that has closed shop.

Once again, this is my personal belief. That retail offerings will constantly evolve to withstand e-commerce pressures. That, COVID will one day be over. That, humans, at the end of day, still wish to visit a shopping mall be it to shop or to date.

Stay tuned for Part 5 soon!



~Mr Llama

______________________________________________

Have been preaching about REITs education on my Youtube Channel. I am thinking if I should disclose my long-term portfolio and share insights on my blog.

Comment below if you have any ideas or suggestions on what kind of content you look forward to:)



LlamaFinance REIT Metrics Series
2. Coming soon!

Uploads will take some time as I am starting to focus more on work stuffs.
Remember to like, share and subscribe with friends interested in REITs investing.



2 Comments

  1. Have been monitoring this particular reit for awhile. Thanks for the detailed write up into Sky Italia.

    Are you currently vested? Am thinking of buying some lots if it enters into the 0.60 region.

    ReplyDelete
    Replies
    1. Not currently vested.. I thought 0.620 was not bad an entry, but my brokerage account was not set up to deal in sgx yet.

      0.60 is good, as it IPO-ed at 0.88. Sponsor is not too bad too. Only if it appears at that price for us, but unlikely since Italy seems to have fought well against COVID, plus ECB support for Italy.

      Cheers

      Delete

google.com, pub-6541438499854011, DIRECT, f08c47fec0942fa0