Brokers' take: Analysts positive on Lendlease Reit on expectations of domestic recovery

ANALYSTS across three brokerages are positive on Lendlease Global Commercial Reit (LReit) on expectations of a domestic recovery amid Covid-19 vaccine rollouts.

Last Wednesday, LReit posted a higher H1 distribution per unit of 2.34 Singapore cents.

Both UOB Kay Hian and CGS-CIMB maintained a "buy" and "accelerate"call on the Reit respectively. UOBKH kept to the same target price of S$0.97, while CGS-CIMB raised its target price to S$0.86 on the back of higher domestic consumption post-Phase Three of Singapore's reopening.

In a report on Monday, UOBKH noted that LReit trades at a 7 per cent discount below net asset value per unit of S$0.85.

UOBKH analyst Jonathan Koh opined that 313@Somerset, owned by the Reit, will benefit from higher shopper traffic when its Grange Road event space is fully operational in H1 2022. He believes that the plug-and-play event space will serve to attract a larger crowd of youths and young professionals, especially given the mall's youth orientation and prime location on top of Somerset MRT.

Further, he foresees that LReit will benefit from redevelopment plans to transform Milano Santa Giulia, where Sky Complex is located, into Milan's key decentralised office district.

"LReit provides an attractive distribution yield of 6 per cent for FY21 and 6.1 per cent for FY22, representing a yield spread of 5 per cent and 5.1 per cent above Singapore's 10-year government bond yield of 1 per cent," he said.

CGS-CIMB analysts were similarly positive on the Reit as they expect vaccine rollouts and further relaxation of social-distancing measures to further accelerate tenant sales and footfall.

Though they foresee rental pressures in the short term, the analysts are optimistic that annual rental escalations at 313@Somerset, the long lease structure of Sky Complex, and the 44,200 square feet Grange Road redevelopment (expected to be operational in H1 2022) will push the Reit on a recovery trajectory.

Meanwhile, Phillip Capital also raised its target price on LReit to S$0.82 from S$0.78 previously, maintaining an "accumulate" call in its Monday report.

Although analyst Tan Jie Hui expects a slow rent recovery due to weak leasing, she believes that shopper confidence will recover on the back of more vaccines in the long term. She is also positive on the Reit's Milan property, noting that the lease at Sky Complex will expire only in 2032.

"Stable revenue contributions from Sky Complex are also expected to mitigate Covid-19 risks," Ms Tan added.

Units of LReit closed two cents, or 2.53 per cent, higher at 81 cents on Monday.