Lendlease Global Commercial REIT - DBS Research 2021-09-02: JEM Acquisition An Impending Catalyst


Lendlease Global Commercial REIT - JEM Acquisition An Impending Catalyst

  • Golden opportunity to fully own JEM, a positive strategic pivot to re-rate the stock.
  • Optimal capital ratio of 75% equity:25% perps for remaining stake will drive accretion of ~1.0% while maintaining gearing < 40%.
  • Index inclusion news could be the boost needed for Lendlease REIT to rally past IPO threshold at 88cents.
  • Maintain BUY on Lendlease REIT with higher target price of S$1.05.

Lendlease REIT - Investment Thesis

Aimed for the bull’s eye – full control of JEM may happen within a year.

  • We believe that a golden opportunity exists for Lendlease Global Commercial REIT (SGX:JYEU) to fully acquire JEM mixed development within the coming year. A dominant mall in the West, we see positives from a pivot into the suburban retail space while its SG exposure will increase to 85% (vs 75%) as Lendlease REIT emerges as the upcoming Singapore-focused retail play.

An optimal capital structure to drive accretion.

  • We believe that Lendlease REIT can digest JEM accretively and our optimal capital structure is to use 75% equity and 25% perpetual securities, bringing accretion of ~0.9% while keeping gearing at an optimal < 40%. The inclusion of debt will bring gearing a tad higher to 42%, and accretion may rise to ~6.0%.

Index inclusion to help Lendlease REIT ‘kill two birds with one stone’.

  • Lendlease REIT inclusion in the NAREIT index will be a catalyst to re-rate the stock, which we believe will drive cost of equity lower. This might be the long-awaited catalyst to push Lendlease REIT's share price beyond the IPO threshold of 88cents and higher.

Lendlease REIT - Valuation

Where we differ

  • Structured to weather storms. 313@Somerset continues to show resiliency with high tenant retention of above 80% maintained, while churning a surprise value appreciation amid COVID-19. The Sky Complex lease remains rock solid with a 12-year triple net master lease expiring in 2032.

Key Risks to Our View

  • Key risks to our view include the threat of a second wave of COVID-19 in Singapore.
  • See the 16-page report attached below for complete analysis on Lendlease REIT.

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-09-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.05 UP 0.900