Analysts are mostly positive on Lendlease Global Commercial REIT (LREIT) in light of the help of tailwinds from recent reopening measures.
The REIT released its business update for the 3QFY2022 ended March on May 5. In the update, it revealed an unchanged portfolio occupancy of 99.9% as at March 31.
Its tenant sales year-to-date (y-t-d) at 313@Somerset have also recovered close to its FY2020 levels, says the REIT.
See: Lendlease REIT reports portfolio occupancy of 99.9% in 3QFY2022 update
Recovery intact, says CGS-CIMB
Following the update, CGS-CIMB Research analyst Lock Mun Yee has kept an “add” rating on LREIT with slightly lower target price of $1.05 from $1.07.
In her May 5 report, Lock notes how LREIT continued to adopt a proactive leasing strategy and strengthened the tenancy mix 313@somerset, including changing the food court operator during the quarter, when LREIT saw positive leasing momentum at the mall.
The analyst also foresees the impact of new contributions from Jem to be expected to be felt from 4QFY2022 onwards.
On this, Lock has adjusted her FY2023-FY2024 distribution per unit (DPU) estimates up by 0.26%-0.87% following the update.
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“LREIT’s visible DPU growth will be underpinned by annual rental escalations in approximately 60% of the mall’s NLA, the long lease at Sky Complex, the redevelopment of Grange Road carpark as well as the full impact of contributions from Jem,” says Lock.
PhillipCapital upgrades LREIT to ‘buy’
PhillipCapital analyst Natalie Ong has upgraded LREIT’s rating to “buy” from “accumulate”, with a higher target price of $1.05 from 94 cents.
The analyst sees rental growth on the back of positive reversions, seeing that both 313@somerset and Jem are in positive territory.
“Additionally, we can see approximately 5% of escalation on Sky Complex's rent in Apr, using March's CPI growth as an indication, ” says Ong.
However, the analyst notes that although tenant sales have recovered slightly, they are still below pre-Covid-19 levels due to absence of tourists. An example would be how tenant sales at 313@somerset dipped 3.3% y-o-y due to the dine-in cap of five pax in 3QFY2022.
At the same time, footfall and tenant sales at Jem have surpassed pre-Covid-19 levels, the latter coming in at 110% of 2019's levels.
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The analyst nevertheless is optimistic that the lifting of workplace capacity to 100% should bring more footfall to both Jem and 313@somerset, which are located near offices, and could further uplift tenant sales.
To this end, Ong has lifted her DPU estimates for FY2022 to FY2026 by 0.6% to 3.8% to factor in the issuance of perpetual securities.
In addition, she has lowered her cost of equity (COE) estimates from 7.7% to 7.0% to “reflect the lower risk associated with its predominantly Singapore-focused portfolio post-acquisition of Jem.
“LREIT’s portfolio is anchored by JEM and 313@Somerset, which are dominant malls in their respective catchments and will benefit from return to office and tourist visits,” she says.
LREIT has ‘attractive’ dividend yield of 7% for FY2023
UOB Kay Hian analyst Jonathan Koh has kept a “buy” rating on LREIT with an unchanged target price of $1.05.
Koh notes how LREIT will be deploying bonus gross floor area (GFA) for new tenancies on prime spaces.
This is seen at 313@somerset, which has an untapped GFA of 10,860 sq ft due to the increase in permissible plot ratio from 4.9 to 5.6.
LREIT has utilised 660 sq ft of the untapped GFA to expand leasable space at two prime units at the ground floor leased to Puma (sportswear) and Ohayo Mama San (concept cafe).
The remaining untapped GFA of 10,200 sq ft will be deployed during fit-out periods for new tenants to avoid disruption to the operations of other tenants.
The analyst also recognises how LREIT plans to grow through acquisitions by tapping on the rights of first refusal (ROFR) provided by its sponsor, in light of how Lendlease Group has a strong presence in Singapore through Paya Lebar Quarter (30% stake) and Parkway Parade (10.2% stake).
The analyst has raised his existing FY2023 DPU forecast by 3% as equity fund raising was downsized by 23%.
To him, LREIT will benefit from the full contribution and tax transparency from Jem in FY2023 as the acquisition of its remaining stake was completed in April 22. LREIT provides an attractive distribution yield of 7% for the FY2023, in Koh’s view.
Citi looks forward to return of tourists for LREIT
Citibank Group Research analyst Brandon Lee has also kept a “buy” rating on LREIT with an unchanged target price of 97 cents.
This is likely due to LREIT hedging close to 100% of its overseas income from Sky Complex on a rolling 1.5-yr basis, with hedged Euro to Singapore dollar rate of 1.6+ relatively higher than the latest 1.46, as Lee notes.
However, while debt cost inched up 6 basis points (bps) q-o-q to 0.98%, LREIT’s high proportion of hedged/fixed debt of approximately 90% implies FY2022 DPU will fall approximately 1% for every 50bps rise in interest rate, according to the analyst’s estimates.
“We see muted share price reaction on limited financial metrics, but with investors continuing to favor re-opening S-REITs, LREIT represents a viable alternative,” says Lee.
As at 11.33am, LREIT is trading flat at 80 cents at a FY2022 P/B ratio of 0.66x and dividend yield of 5.89% according to CGS-CIMB’s estimates.
Photo: LREIT
