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Broker's take: DBS initiates coverage on Lendlease Global Reit with 'buy'
DBS Group Research has initiated coverage on Lendlease Global Commercial Reit with a "buy" call and a 12-month price target of S$1.05, citing the recently listed Reit’s initial portfolio which offers a good mix of resilience, growth and visibility.
The properties in the portfolio - 313@somerset in Singapore and Sky Complex in Milan, may also gain from long-term rejuvenation plans, said analyst Derek Tan.
313@somerset is located at Orchard Road – which is being repositioned as a lifestyle destination, while Sky Complex is at Santa Giulia, which is being transformed into a business and residential district.
In addition, around 92.8 per cent of the leases by gross rental income have inbuilt rental escalation. Lendlease Global Reit’s forward yield of 5.6 per cent is also more attractive against retail peers trading at yields below 5 per cent, Mr Tan said.
This discounted cash flow-derived target price of S$1.05 represents a 14 per cent upside from the counter’s close of S$0.92 on Dec 5. It was also based on a weighted average cost of capital of 5.75 per cent, and a terminal growth rate of 2 per cent.
The real estate investment trust is also backed by an established sponsor – Lendlease Corporation – with "proven global reach" and A$32.5 billion (S$30.2 billion) worth of assets globally, according to the brokerage.
Nonetheless, key risks to DBS’s view includes risks in Singapore and Italy, tenant concentration risk, changes in withholding tax laws in Italy, foreign exchange risks and interest rate risks, Mr Tan added.
As at 10.16am, Lendlease Global Reit units were trading at S$0.925, up 0.5 Singapore cent or 0.5 per cent.
The Reit saw a strong debut on the Singapore Exchange's main board on Oct 2. Shortly after opening for trade, its counter jumped 6.8 per cent to 94 Singapore cents, from its initial public offering price of 88 cents.