Analysts from CGS-CIMB Research and UOB Kay Hian have kept “add” and “buy” on Lendlease Global Commercial REIT (LREIT) after it lifted its stake in Jem to 31.8% on June 7.
See: Lendlease Global Commercial REIT to increase stake in Jem for a total of up to $347 mil
The REIT increased its effective stake through two transactions, namely, a 53.0% interest in Lendlease Jem Partners Fund from third-party vendors for $159.1 million, as well as the acquisition of a 5.0% interest in Lendlease Asian Retail Investment Fund 3 from Lendlease International for $45 million.
The proposed acquisition is accretive to the REIT’s distribution per unit (DPU), boosting pro forma FY2020 DPU by 3.6%. It will also enhance cash flow resiliency from the REIT’s higher exposure to suburban retail.
In addition, the acquisition will up LREIT’s assets under management (AUM) by 18% to $1.8 billion, where Jem will account for 20.9% of the REIT’s total AUM.
The move will lower LREIT’s resilience on [email protected] from 67.6% to 55.1% of its total AUM.
Jem is an integrated office and retail asset located within the commercial hub of the Jurong Lake District. It is one of Singapore’s largest suburban malls and has an appraised value of $2.06 billion to $2.09 billion.
It commands a total gross floor area (GFA) of 1.2 million sq ft and a weighted average lease expiry (WALE) of 6.5 years by gross rental income (GRI).
The property has a high committed occupancy of 99.7% with anchor tenants such as Ikea, Don Don Donki and H&M across its retail space spanning six levels.
Jem’s 12 levels of office space are 100% leased to the Ministry of National Development (MND) with a long WALE of 24 years.
On this, CGS-CIMB analysts Eing Kar Mei and Darren Ong have upped their dividend discount mode (DDM)-based target price to 89.1 cents from 86.9 cents previously.
Eing and Ong have, however, lowered their DPU estimates for FY2021 to FY2023 by 1.3% due to the difference in timing from LREIT’s issuance of its perpetual securities on June 4 and the completion of acquisitions in Sept 30.
“Accretion will increase over time as annual escalation kicks in,” write the analysts in a June 7 report.
“LREIT is keen to acquire the remaining stake of Jem for cost efficiency. We like LREIT for its resilient income and undemanding valuation versus peers,” they add.
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UOB Kay Hian analyst Jonathan Koh has, too, increased his DDM-based target price estimate on LREIT to $1.01 from 97 cents previously.
In his report on June 8, Koh has raised his DPU forecast for the FY2023 by 4.7% after factoring in the accretion from the acquisition.
“We assumed cost of borrowings at 1.5%,” he writes.
“LREIT provides attractive distribution yield of 6.0% for FY2021 and 6.1% for FY2022, representing yield spread of 4.5% and 4.6% above the Singapore 10-year government bond yield of 1.5%. LREIT trades at a ignificant 8% discount below net asset value (NAV) per unit of 85 cents”.
As at 10.02am, units in LREIT are trading flat at 79 cents, or 0.94 times P/B, according to CGS-CIMB’s estimates.