DBS Group Research analysts Geraldine Wong and Derek Tan have kept their “buy” call on LendLease Global Commercial REIT (LREIT), describing it as a “hidden gem” with the potential to emerge as a strong contender within the retail Singapore REIT space.
In their Nov 8 report, the analysts point out that LREIT continues to trade at a yield discount of 80-110 basis points to its peers within the large-cap retail space. They believe that this is unwarranted and should compress over time.
“We believe the market will start to appreciate LREIT’s enhanced value proposition to match its large-cap peers as it has a Singapore-centric strategy with an attractive pipeline of dominant commercial assets under right of first refusal; an added leg of resilience with growing suburban exposure and stable long-standing office leases; acquisition growth visibility; and reopening prospects in FY2023-FY2024,” the analysts add.
Wong and Tan believe that the risk-reward profile for LREIT has turned more favourable with JEM in the bag, as it rides on the rebound of its key assets going forward.
They highlight that the REIT’s FY2023 and FY2024 forward yields are compelling for a reopening play at 6.9%, with substantial suburban retail exposure.
On a portfolio basis, LREIT's tenant sales continued to surpass pre-Covid-19 levels in its 1QFY2023 ended September, with sales at 313@Somerset surging to about 125% of pre-pandemic levels in the quarter, far outpacing DBS’s expectations.
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“With occupancy cost now dipping below pre-Covid-19 levels, we see further room for expansion in reversionary rents and expect passing rents to further recover in the coming financial year from the current about 10%-15% discount to FY2019 levels at about $17.80 psf per month,” they add.
Although LREIT’s development of Grange car park is still within early stages of construction, the analysts see potential delays against their initial forecast of completion in mid-2023. They now expect it to be completed mid-2024.
The analysts have lowered their target price to $1 from $1.10 previously to account for higher interest rate expenses.
As at 11.28am, units in LREIT are trading 1 cent higher or 1.5% up at 68 cents.
