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It’s a ‘buy’ for LREIT, and ‘hold’ for SPH REIT and Starhill Global REIT Among the REITs that have properties on Orchard Road, Wong and Tan have maintained “buy” on LREIT with a target price of 90 cents, and “hold” on SPH REIT and Starhill Global REIT (SGREIT) with target prices of 80 cents and 55 cents respectively. “LREIT is well-placed as our top Orchard pick given its 39% exposure to the F&B sector where we see immediate upside to normalisation, future-positioned mall with a continuous effort to scale its omnichannel share a step ahead of SGREIT and SPH REIT, 30% stable revenue contribution from office asset Sky Complex, and forward yield of 6.6% that is attractive on a risk-to-reward perspective,” say the analysts. Based on tenant trade exposure and earnings buffer, Wong and Tan say they prefer LREIT and SGREIT to SPH REIT due to “limited downside risks” to SGREIT’s 43% master lease exposure and LREIT’s 39% exposure to the F&B segment.
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LREIT as top pick; SGREIT over SPH REIT In addition to maintaining its top pick on LREIT, the analysts have indicated that they prefer SGREIT over SPH REIT, even though the former is a “laggard” on three fronts: share price performance, P/NAV and dividend yield. SGREIT’s share price performance is behind both LREIT and SPH REIT even though it has almost half, or 49.5% of its gross rents on a “relatively stable basis” in comparison to SPH REIT’s rents at 12.4% from its medical and office leases. However, the analysts say they expect “near-term share price normalisation for SGREIT to trade closer to mean, supported by earnings visibility through a 50% revenue contribution from master lease and anchor leases”. On a P/NAV basis, all three REITs are trading below the sector average of 0.97 times, and below book at 0.93 times for SPH REIT, 0.64 times for SGREIT and 0.91 times P/NAV for LREIT. Both SGREIT and SPH REIT are trading within the range of -1 and -2 standard deviation (s.d.) of historical range. For dividend yields, the analysts estimate SGREIT to deliver the highest FY2022 forward yield at 7.7% followed by LREIT at 6.6% and SPH REIT at 6.6%. “Our forward FY2022 distribution per unit (DPU) estimates remain conservatively below FY2019 levels on the assumption that tourist traffic will only normalise in FY2024 or beyond,” they write. “All three Orchard plays are trading at a current 30- to 80-basis point yield premium to the sector average of 5.8%,” they add. As at 12.09pm, units in LREIT, SGREIT and SPH REIT are trading at 78.5 cents, 52 cents and 82 cents respectively.