Lendlease Global Commercial REIT started at Outperform by Daiwa

An advertisement for the Lendlease Global Commercial REIT IPO at the Paya Lebar Quarter Mall, which was developed by Lendlease.An advertisement for the Lendlease Global Commercial REIT IPO at the Paya Lebar Quarter Mall, which was developed by Lendlease.

Daiwa initiated Lendlease Global Commercial REIT at Outperform with a S$1.10 target price, pointed to an undemanding valuation and a good pipeline of potential acquisitions.

“With most commercial and retail Singapore-REITs looking fully valued or overvalued, LREIT is our top pick in the S-REIT sector for its undemanding valuation and solid long-term deal pipeline,” Daiwa said in a note Monday.

Lendlease Global Commercial REIT’s 12-month forward distribution per unit (DPU) yield is at 5.6 percent, compared with the S-REIT average of 5.1 percent, Daiwa said.

LREIT has two assets: The S$1 billion 313@Somerset mall on Singapore’s tony Orchard Road shopping belt,  and the 265 million euro (S$400 million) Sky Complex office complex in Milan, Italy, Daiwa noted, adding the REIT’s sponsor, Lendlease Group has global funds under management of A$35 billion.

“Aside from the uniqueness of the 2 IPO assets, we think the most noteworthy feature of LREIT is the Lendlease pipeline in Singapore of two
newly built best-in-class mixed developments (Jem and Paya Lebar Quarter [PLQ]) worth a combined S$4.7 billion, based on our conservative
estimates, which would dwarf LREIT’s post-IPO assets under management (AUM) of S$1.4 billion, Daiwa said.

“Our back-of-the envelope calculation only assumes the two Singapore transactions, but if the deal flow includes some stable and higher yielding assets in Europe or Australia then LREIT’s AUM and market cap could even be bigger. This would place LREIT among the largest non-Mapletree or CapitaLand related REITs in the market,” Daiwa added.

When it comes to the existing assets, Daiwa said 313@somerset looks “slightly overvalued,” but it added, “we also believe the Orchard Road mall is being injected into LREIT near the bottom of its property cycle so we see limited downside earnings risk,” the note said. “The mall looks set for a gradual multi-year rental recovery and we expect rental reversions to gain traction from FY22.”

Sky Complex appears undervalued, due to the quality of the building, the long lease to an investment-grade tenant and its 75 percent inflation-indexed nature, Daiwa said.

“The property also looks severely under-rented (with a lease that was secured more than a decade ago),” Daiwa added.

The REIT’s units were up 0.54 percent at S$0.94 at 11:47 A.M. SGT.

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