Brokers’ take: Analysts positive on Lendlease Reit amid recovering retail sector, high portfolio occupancy

ANALYSTS are positive on Lendlease Global Commercial Reit (Lendlease Reit) amid its high portfolio occupancy, noting that it should benefit from the recovering retail sector.

CGS-CIMB raised its distribution per unit (DPU) estimates by 0.3 to 0.9 per cent for FY2023 to FY2024, after taking into account the real estate investment trust (Reit)'s recent Q3 results.

It also maintained an “add” call on the counter, although it lowered its target price to S$1.05 from S$1.07.

Lendlease Reit units were trading at S$0.805 as at the midday break on Friday, down S$0.005 or 0.6 per cent. The target price represents a potential upside of 30.4 per cent.

The manager of Lendlease Reit on Thursday (May 5) said the Reit’s portfolio occupancy for the third quarter ended Mar 31 remained high at 99.9 per cent, and tenant sales year-to-date for its 313@somerset mall have recovered close to FY2020 levels.

CGS-CIMB said Lendlease Reit’s visible DPU growth will likely be supported by annual rental escalations, the long lease at Sky Complex and the redevelopment of Grange Road carpark.

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New contributions from its acquisition of the remaining stake in Jem should also support the Reit’s DPU growth from the fourth quarter of FY2022 onwards.

Meanwhile, Citi has a “buy” call and target price of S$0.97 on the counter, implying a potential upside of 20.5 per cent.

It views the underperforming share price as a buying opportunity, given that investors continue to favour reopening Singapore Reits.

While footfall and tenant sales were down year on year, Citi believes this will improve as it was impacted by the Omicron wave, with the return of tourists expected to benefit 313@somerset within the next 6 to 18 months.

The brokerage believes the financial impact of higher utilities cost is insignificant for FY2022 and FY2023 as contracts are already locked in for over a year for both 313@somerset and Jem, while Sky Complex’s triple-net lease structure suggests utilities cost is fully borne by the tenant.

While Citi foresees that DPU may fall due to higher debt costs amid rising interest rates, the resumption of social activities and launch of the Vaccinated Travel Framework should result in a steady recovery over the next 6 to 18 months, particularly as tourists traditionally contribute 20 to 25 per cent of 313@somerset’s traffic and tenant sales.

Citi, however, expects a muted share price reaction due to the limited financial metrics provided.