Liu resumes coverage of LREIT with “buy” and a target price of 91 cents, which represents an upside of 36.9% against its last traded price of 70 cents on April 21.

Along the Orchard Road shopping belt, LREIT is expecting its new tenant Live Nation to be fully renovated at the end of 2024. With a capacity of more than 2,000 concertgoers per event, four events per day translate to generate an additional footfall of 1 million per year, which is 2.5% of shopping mall 313@somerset’s footfall.

“We expect a 30% decrease in capex due to Live Nation taking most of the space on Grange Road. LREIT is also actively managing its operating expenses by switching the utility contract to a lower-cost government contract,” writes Liu.

Liu expects more than 90% of the tenants, except money changers and gadget stores, to benefit from the concerts.

Staying on organic growth, LREIT is also gradually deploying its additional plot ratio of 10,200 sq ft, or 3.4% of the total net lettable area (NLA) of 313@somerset. “If LREIT is to deploy the entire 10,200 sq ft, we believe the plan is to convert Level 7/Level 6 (currently a car park) into retail and expand higher-yielding floors, such as Level 1.”

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='https://www.theedgesingapore.com/capital/brokers-calls/analysts-see-lendlease-emerging-dominant-retail-play-after-1hfy2023-dpu-beat?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Analysts see Lendlease 'emerging as a dominant retail play' after 1HFY2023 DPU beat expectations</a>

With the additional plot ratio and the presence of Live Nation, Liu expects the net property income (NPI) of 313@somerset to increase by 2%.

Meanwhile, LREIT’s Jem property sees office occupancy staying at 100%, and it is fully leased to the Ministry of National Development. Tenant sales in Jem were up for 20% y-o-y due to the resilience from necessity spending and an increased footfall, adds Liu. “We expect higher rental reversion due to the current low occupancy cost.”

For LREIT’s Sky Complex Milan in Italy, Liu expects an annual rental escalation of 5.7% based on 75% of March consumer price index (CPI) growth. Master tenant Sky Italia’s lease ends in May 2032, with a physical occupancy rate at 70% currently.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='https://www.theedgesingapore.com/capital/brokers-calls/lreits-jem-offers-better-prospects-jurong-point-implied-cap-rate-expansion-90?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>LREIT's Jem offers better prospects than Jurong Point; implied cap rate expansion of 90 bps 'overly negative': Citi</a>

The current market rental rate is EUR300-320/sq m per month ($440.57-$469.94). However, Sky Italia is renting at EUR188/sq m. “As such, we believe there is an upside in rental reversion upon lease expiry.”

On inorganic growth opportunities, LREIT is estimated to have a debt headroom of $207 million after capping earring at 45%, which allows for piecemeal acquisitions of a small stake in PLQ Mall or Parkway Parade (PP) as Singapore remains its focus.

“We believe LREIT can acquire 6.2% of PLQ Mall or 14.7% of PP, assuming the cap rate for PLQ Mall and PP is 4.5%,” writes Liu.

Liu expects LREIT to declare FY2023/2024 distributions per unit (DPUs) of between 4.63 and 4.78 cents.

As at 11.13am, units in Lendlease Global Commercial REIT are trading 0.5 cents lower, or 0.71% down, at 70 cents.

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