Date: September 25, 2024
Broker Name: CGS International Securities Pte. Ltd.

Overview

Lendlease Global Commercial REIT (LREIT) is recommended with an “ADD” rating, reflecting its strategic initiatives to improve operating and balance sheet metrics. The stock is currently trading at S$0.60, with a target price of S$0.71. The REIT’s prime retail assets and strategic management efforts provide a strong foundation for future growth.

Prime Retail Assets

LREIT owns and manages two key prime retail properties in Singapore: 313@Somerset and Jem. Both properties are experiencing high occupancy rates, which are expected to support positive rental reversion trends. The high footfall and prime locations of these assets contribute to the REIT’s stable revenue generation.

Strong FY25F DPU Yield

LREIT is offering an attractive FY25F DPU yield of 6.6%, indicating strong investor returns. This high yield is supported by its resilient retail portfolio and strategic efforts to optimize operations, even in a challenging economic environment.

Strategic Initiatives to Improve Metrics

LREIT has multiple strategies in place to enhance its financial and operational performance. Key initiatives include the potential divestment of the Jem office and the back-filling of space in Building 3 of the Sky Complex. The divestment of the Jem office is projected to improve LREIT’s gearing from 40.9% to approximately 35%, creating more headroom for future growth opportunities.

Financial Flexibility and Growth Potential

With the Fed’s projected interest rate cuts, LREIT is expected to benefit from lower debt costs, allowing the REIT to pursue growth initiatives. Lower interest rates will also aid in reducing funding costs, thereby boosting the REIT’s ability to acquire positive carry assets, further enhancing its operating metrics.

Key Financial Metrics

• P/E Ratio (FY24F): 20.31
• Dividend Yield: 6.51% (FY24F), 6.61% (FY25F), 6.66% (FY26F)
• P/BV: 0.80 (FY24F), 0.83 (FY25F), 0.85 (FY26F)
• Target Price: S$0.71
• Current Price: S$0.60

Risk Management

LREIT’s ongoing efforts to reduce its gearing and enhance operational performance are expected to mitigate downside risks. With strategic divestments and back-filling strategies in place, the REIT is actively managing risks related to occupancy and gearing.

Conclusion

Lendlease Global Commercial REIT is well-positioned for recovery, with strong growth prospects supported by its high-yield retail assets and strategic financial management. The potential divestment of Jem and other growth initiatives are set to improve its balance sheet and create further opportunities for growth, making LREIT a compelling investment, as outlined by CGS International in its September 2024 report.