PhillipCapital analyst Natalie Ong has kept her “accumulate” call on Lendlease Global Commercial REIT (LREIT) after the REIT proposed to acquire the remaining interest it does not own in Jem on Feb 15. She has also kept her target price unchanged at 94 cents.
In her report on Feb 23, Ong notes that the proposed acquisition will double LREIT’s assets under management (AUM) and market capitalisation, propelling it to become one of the top 20 Singapore REITs (S-REITs).
However “the large quantum of the acquisition necessitates equity fundraising, which carries a higher cost of capital, making this leg of the Jem acquisition less accretive compared to previous rounds,” she says.
“Based on our forecast, the acquisition of the remaining 86.15% stake in Jem is marginally accretive at 0.1%, in line with the pro-forma distribution per unit (DPU) accretion of 0.1-3.0%,” she adds.
To this end, Ong has increased her DPU estimate for the FY2022 and FY2023 by 1.7% and 0.3% respectively, while her DPU estimates for FY2024-FY2026 were lowered by 0.4%-1.1% due to the REIT’s enlarged share base.
“The current share price implies FY2022 DPU yields of 6.0%. Pipeline assets for LREIT include Paya Lebar Quarters and Parkway Parade,” she says.
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Jem is one of the bigger malls in Jurong East, pulling from a catchment of some 1.1 million residents as at 2020. The mall’s retail occupancy was 100% as at Dec 31, 2021, and remained above 98% throughout the Covid-19 pandemic, says Ong.
“Despite the 100% occupancy, the manager managed to increase revenue for the property by creating 1,500 sq ft in additional net lettable assets (NLA) at level 1 and basement 1,” she adds.
The office component is fully leased to the Ministry of National Development (MND) on a 30-year lease ending in 2045. The lease is subject to a rent review every five years and contributes 20% and 35% of JEM’s gross rental income (GRI) and NLA for the year ended Dec 31.
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As at 12.03pm, units in LREIT are trading 0.5 cent lower or 0.61% down at 81 cents, or an FY2022 P/NAV of 1.05x.
Photo: The Edge Singapore
