SINGAPORE (June 16): DBS Group Research is reiterating its “buy” recommendation on Lendlease Global Commercial REIT (LREIT) with a target price of 85 cents.
This comes on the back of the REIT winning the tender to redevelop the 48,200 sq ft carpark at Grange Road into a new multi-functional event space, as part of the 2019 URA Master Plan to rejuvenate the Orchard and Somerset precinct.
See: Lendlease Global Commercial REIT wins Grange Road event space
The tender comes with a total tenancy term of not more than 10 years and will help expand LREIT’s footprint in the Somerset area to about 330,000 sq ft, making one of the larger malls in the Somerset submarket.
“The news is a positive surprise as it is not usual for retail REITs to partake and win redevelopment tenders. This will serve as another short to medium term catalyst for LREIT, above the deployment of additional plot ratio at 313@Somerset,” says DBS analyst Derek Tan and the Singapore research team in a Monday report.
The concept will include multiple dedicated event spaces, an independent cinema, and local food & beverage attractions, targeted at millennials and tourists.
LREIT is collaborating with Live Nation, an American events promoter, to host concerts, film and events all year round, as well as local independent cinema operator The Projector.
“Moreover, we envision that the lease terms for non-anchor tenants will be shorter for this event space to keep concepts fresh and may serve as an expansion or test bed option for new retail concepts for existing tenants at 313@Somerset,” says Tan.
The redevelopment is expected to be completed in 2Q22, with an estimated development cost of about $10 million. This development cost will be funded by LREIT’s working capital, spread across the development time frame.
This project has minimal impact on gearing as no additional debt is expected to be undertaken. LREIT’s gearing stands at 36% at Mar 31, 2020.
However, information on potential returns was not provided but DBS believes that an ROI in the double-digit level will most likely commensurate for the short tenure of 10 years.
As at 11.15am, units in LREIT are trading 5.9% higher at 72 cents or 0.8 times FY20 book with a distribution yield of 7.1%.
