Brokers' take: Phillip upgrades Lendlease Global Reit to 'accumulate' with higher S$0.97 target

PHILLIP Securities has upgraded its call on Lendlease Global Commercial Reit (Lendlease Global Reit) JYEU from "neutral" to "accumulate" with a revised target price of S$0.97, up S$0.10 or 11.5 per cent from the previous target price of S$0.87.

Phillip's revision in its estimates follow a change of analyst covering the Reit. The target price revision is based on an adjustment in FY2022-2023 earnings and a lower cost of equity assumption of 7.7 per cent, previously 8 per cent. Distribution per unit for FY2022-2023 is estimated to increase by 8.6 per cent and 7.7 per cent, respectively.

In a Monday (Nov 15) report, analyst Natalie Ong highlighted that the forecasted contributions have been raised due to the Reit's impending acquisition of the remaining stake in Jem, a suburban mall in Jurong East.

Lendlease Global Reit announced in its Nov 5 business update that it had acquired an additional 28.1 per cent stake in Jem over Q1 2021, bringing their current total stake in the mall to 31.8 per cent.

Noting that the value of the remaining stake in Jem stands at S$1.4 billion, Ong said: "The management is optimistic about acquiring the remaining stake in Jem within the next 12 months and is in avid discussions with the remaining investors."

She estimates Lendlease Global Reit will be able to reap tax savings following the acquisition of the remaining stake, after applying for tax transparency status for Jem.

Ong added that positive, high single-digit reversions at downtown mall 313 @ Somerset, have "bucked negative reversion trends" as tenant retention improved quarter-on-quarter from 61.5 to 90 per cent.

A rebalancing of the mall's tenant mix and its refreshed offerings have led to increased sales and in turn, higher rates of tenants renewing their leases, the analyst said.

About two thirds of tenants have opted for traditional lease structures with higher base rents and a lower gross turnover (GTO) component, indicating their confidence in maintaining and growing sales. However, Ong notes that tenant sales currently stand at at 70-80 per cent of 2019 levels.

In Milan, Lendlease Global Reit also has three buildings on a long-term lease to Sky Italia, a broadcasting and cable television company.

"Sky Complex is Sky Italia's headquarters and only office location. The asset is on a long lease that expires in May 2032, with a lease break option in 2024, subject to a one-year notice period. In-place rents are 30 per cent below market rents, implying possible positive reversions if the lease break is executed," said Ong.

As at the midday trading break on Monday (Nov 15), units of Lendlease Global Reit were down S$0.005 or 0.56 per cent at S$0.895.

READ MORE:

• Lendlease Global Reit posts portfolio occupancy of 99.8% for Q1; raises stake in Jem
• Lendlease Global Reit posts 33% increase in DPU for second-half year amid retail recovery