UOB Kay Hian has initiated a “buy” rating on Lendlease Global Commercial REIT (LREIT) with a target price of 97 cents, as it believes the REIT could benefit from 313@Somerset’s unique positioning and income stability from Sky Complex in Italy.
The way analysts Jonathan Koh and Loke Peihao see it, the REIT’s largest asset, 313@Somerset is uniquely positioned due to its youth orientation and prime location on top of Somerset MRT station, one of the busiest stations in Singapore.
The mall will also benefit from the government’s plan to rejuvenate Orchard Road, including the redevelopment of the Grange Road car park to a dedicated event space.
The REIT’s Italian property Sky Complex, which is located at the emerging and vibrant office area Milano Santa Giulia, provides income stability.
Sky Complex is fully leased to Sky Italia on a triple net basis till 15 May 2032, with a long weighted average lease expiry (WALE) of 11.6 years.
Sky Italia is a subsidiary of Comcast Corporation, the world’s second largest broadcasting and cable TV company.
“Sky Complex benefits from the migration towards the Periphery submarket in search of quality office space with large floor plates,” say Koh and Loke.
The REIT may also stand to benefit from a potential acquisition pipeline from its sponsor, Lendlease Group, which has a development pipeline value of A$113 billion ($111.49 billion) and funds under management of A$36 billion.
“LREIT will increase its exposures to other gateway cities through right of first refusal (ROFR) provided by its sponsor. Lendlease Group has a strong presence in Singapore through Jem (15.1% stake), Parkway Parade (10.2% stake) and Paya Lebar Quarter (30% stake). It also has [a] long-standing presence in Australia, Asia (Singapore, Malaysia, China and Japan), Europe (Italy and the UK) and the US,” the analysts note.
To this end, the analysts have called LREIT a “laggard” that has an attractive yield spread and discount to net asset value (NAV).
“Our target price of 97 cents is based on the dividend discount model (DDM) (cost of equity: 6.0%, terminal growth: 1.0%). LREIT provides attractive yield spread of 6.2% for FY21 and 6.4% for FY22 above Singapore 10-year government bond yield of 0.9%. LREIT trades at a significant 20% discount below net asset value (NAV).”
Units in LREIT closed 0.5 cent higher or 0.7% up at 68 cents on Nov 30.
